The Payments 101 series continues to explore the payments ecosystem members.
An Acquiring Bank (commonly known simply as an ‘acquirer’ or ‘merchant bank’) is a licensed member of a card association, such as Visa or MasterCard, which accepts card payments on behalf of a merchant. The acquirer is a bank or financial institution that serves as the merchant services provider – maintaining a direct relationship with the merchant. An acquiring bank accepts the risk of the merchant’s business (through a thorough evaluation process known as ‘underwriting’), provides a merchant account for the merchant to accept credit card payment, and manages all transactions regarding this account. In a simple credit card transaction workflow, the acquirer serves as the link between the merchant, the card association and the issuing (cardholder’s) bank[1]. A merchant account can be established directly with an acquiring bank or through a licensed agent of the bank known as an Independent Sales Organization (ISO).
The Transaction Flow
When a customer makes a purchase, the merchant transmits the transaction information to the acquiring bank. Using the card association network, the acquiring bank sends an authorization request to the issuing bank who returns an authorization response, along with the approved funds, to the acquiring bank. The acquiring bank then deposits the funds (less associated fees for service) to the merchant’s account.
As a software company or developer, you will need to be prepared to navigate the payments ecosystem to effectively support your merchant customers. In fact, the relationship a merchant has with their acquiring bank or merchant service provider is often a driving force in selecting a software partner because the merchant will expect you to support their transaction requirements without modifying their existing relationships. This is why it is important to select a payments API that offers choice in both payment services and providers to ensure that merchant customer’s needs are easily addressed and existing relationships are respected.
[1] Card Issuing Banks (Issuers) extend credit to a cardholder or consumer (for personal or business use).
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