Acquiring banks, also known as merchant banks, are financial institutions or banks that are members of a card association licensed with credit card companies. Some well known card companies are MasterCard, Visa, American Express and Diners Club.
What does an an acquiring bank do?
Acquiring banks accept credit card processing with a use of debit and credit cards issued by all banks within the associated card. The acquiring bank signs a contract with a merchant and offers it a merchant account.
The acquiring bank is linked to a merchant with a line of credit, and not with a bank account. This is known as a merchant account. Acquiring banks serve as a link between the merchant, card association and the issuing (cardholder) bank.
How are merchant accounts set up?
Merchant accounts are established directly with an acquiring bank or through a payment gateway (PSP). The acquiring bank:
accepts the risk of the merchant’s business
provides merchant account to allow payments
manages all transactions related to account
A merchant account is responsible for credit card processing, clearing of funds, and depositing the funds into a merchant’s bank account. Acquiring banks charge for services, and these fees vary and are dependent on:
the country or merchant’s business
fixed fee per transaction
Not all acquiring banks charge for fixed fee per transactions and SWIFT fees, and fee vary depending on the type of business and the country the business is located.
Acquiring banks take great risk. Because of the, the acquirer takes a great interest in the nature of the merchant’s business and practices. Banks keep a close eye on the merchant, and make sure the merchant account is maintaining positive transactions and avoiding chargebacks.
Having a clear record is vital due to the risk of not receiving payment for frauds and illegal transactions coming from scams and/or identity theft is frequently encountered when doing business online.