Acquiring banks vs issuer banks

While a basic E-Commerce transaction might appear simple on the surface, it involves a series of deceptively complex transactions between two separate banks. It’s a transaction that takes seconds. However, it involves requesting and authorising payments, processing them through various card networks, then sending and acquiring necessary funds.

All payment card transactions involve two parties – the issuing bank and the acquiring bank. The issuer is typically the cardholder’s bank and the acquirer typically the merchant’s bank. But in the credit-card acquirer vs issuer debate, who plays what role, and what responsibilities do each have to take into account in every transaction?

Acquirer vs issuer

There are several differences to take into account, with each party needing to fulfil their roles and responsibilities to ensure a smooth and secure transaction. Both banks must allow their users to accept payments through their networks.

Acquiring bank

The role of the acquiring bank is to facilitate payment for the merchant. The acquiring bank (the merchant’s bank) must maintain a customer account, process customer payments, pass along transactions so they can receive payments and provide the merchant with a line of credit to offset any processing costs or potential chargebacks.

Issuing bank

The role of the issuing bank is to provide credit to the consumer and facilitate repayment of transactions to the acquiring bank. The issuing bank (the customer’s bank) must either approve or deny all credit card applications, authorise the ability of the cardholder to pay for that transaction and release the amount required for it once it’s been approved.

Breaking down the process

Various financial institutions work behind the scenes to make a transaction happen. To understand and appreciate how these institutions work together, it’s important to understand how a typical card payment actually works.

First, the cardholder makes a purchase and the data from that purchase is sent to the acquiring bank of the merchant. That transaction is then submitted to the card network and forwarded to the issuing bank.

The issuing bank then debits the cardholder’s account and submits payment to the card network, which in turn forwards the payment to the acquirer, minus any fees. Finally, the settled transaction goes to the acquiring bank through a processor and the transaction verified. This all takes place in a matter of seconds.

Different banks and different roles

While having two banks involved might seem complicated, both are required to ensure the payment is legitimate and both parties satisfied.

The issuing bank works on behalf of the customer and takes on the risk of issuing credit to its customers. The card networks themselves (be it Visa or Mastercard) are not involved implicitly. They simply offer the framework to allow it to happen and put the proper standards in place.

The acquiring bank processes debit and credit card payments on behalf of merchant accounts. It routes transactions through the card network and accepts payment from the issuing bank once properly processed. The acquirer is more liable to be taken to task in the event of a data breach, which is why all merchants must conform to PCI DSS compliance.

What happens with a chargeback?

In the event of a chargeback, the transaction is effectively reversed. The money is withdrawn from the acquiring bank and returned to the issuing bank. This chargeback can be disputed by the merchant, in which case the acquiring bank must gather evidence on behalf of the merchant to prove the validity of the initial transaction.

We can help

If you’re interested in finding out more about the difference between credit card acquirers and issuers, or any other aspect of your finances, get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.