When a customer makes a payment, it only takes a tap or a swipe of their card. However, every transaction — whether it's a tap, swipe, or click — initiates an intricate relay between financial institutions, a process made possible through your acquiring bank.
What is an acquiring bank?
An acquiring bank is a financial institution that provides merchant services to businesses, allowing them to accept credit card, debit card and other forms of payment from their customers.
The acquiring bank makes it possible for merchants to process payments by creating a merchant account and providing the necessary equipment, software and services required for processing card transactions.
It is important for merchants to understand how an acquiring bank operates when setting up their merchant account as well as be aware of any associated costs associated with accepting payments via credit cards.
Role of an acquiring bank in credit card transactions
The role of an acquiring bank in credit card transactions is to facilitate the payment process by verifying the validity of the cardholder, authenticating the transaction flow and collecting interchange fees.
Acquiring banks work with card brands such as Visa, Mastercard, Discover and American Express to verify the identity of the cardholder and authorise funds for payment before sending confirmation back to the merchant. This process allows merchants to accept payments from customers without having to maintain their own bank accounts.
They also provide merchants with the necessary equipment and software for processing credit card transactions, as well as various merchant services such as online payments and point-of-sale terminals. Additionally, they must adhere to industry security standards such as PCI DSS in order to protect both themselves and their customers when processing payments.
Understanding the credit card authorisation process
Features of an acquiring bank
1- Payment processing
Accept electronic payments from customers, such as credit and debit card transactions. They provide the necessary infrastructure and technology to securely process these payments.
2- Merchant account setup
Helps businesses to set up merchant accounts, which are specific types of bank accounts designed to receive funds from electronic transactions. These accounts allow businesses to receive payments from customers and have the funds deposited into their bank accounts.
3- Payment gateway integration
Integrates with payment gateways, which are software platforms that securely transmit payment information between the merchant, customer, and issuing banks. This integration ensures smooth and secure transmission of transaction data during the payment process.
4- Risk management
Assess and manage the risk associated with payment transactions. They employ various security measures, fraud detection systems, and compliance procedures to protect merchants and customers from fraudulent activities and ensure regulatory compliance.
5- Settlement and funds disbursement
They handle the settlement process, which involves transferring funds from the customer's issuing bank to the merchant's bank account. They typically settle funds on a predefined schedule, usually within a few business days, and provide detailed transaction reports to merchants.
6- Customer support
Assisting customers with any payment-related issues, inquiries, or disputes. This can include troubleshooting technical problems, resolving chargebacks, and providing assistance with account management.
7-Value-added services
Advanced reporting and analytics, recurring billing solutions, multi-currency support, and integration with other business systems like PMS, OMS, or e-commerce platforms.
8- Security, fraud prevention and compliance services
Acquiring banks provide merchants with these services to help ensure the safety and security of their customers' information. They implement advanced fraud detection systems to screen for suspicious activity and protect against potential data breaches or fraudulent transactions.
They also ensure that merchants meet the strict PCI DSS standards set by the major card associations in order to guarantee the secure transmission of payment information.
9- Payment processing support and services
Acquiring banks provide merchants with a range of services that help ensure the secure processing of their customers' payments. These services include verifying cardholder information, authenticating payment information, verifying transaction data, providing customer dispute resolution services and helping to comply with PCI DSS standards.
All of these services allow merchants to process payments safely and confidently while providing customers with peace of mind when making purchases.
10- Returned funds management
When customers make purchases online or in a store with their credit, debit, or prepaid card, the issuing bank transfers funds to the merchant’s account. If a customer later requests a refund or if there is an issue with the transaction, the issuing bank may return these funds to the cardholder's account.
Merchants need to have effective processes in place for managing returned funds as this ensures that transactions are tracked and accounted for properly.
11- Access to merchant banking facilities
Merchant banks provide merchants with a range of services such as merchant accounts, payment processing, merchant services and card transactions.
With merchant banking facilities in place, merchants can process payments from any customer on any device or platform such as point-of-sale systems or online stores. These banks also provide additional security measures such as PCI DSS which helps protect the cardholder's data from theft and misuse.
12- Cost-effectiveness
Merchant banks provide merchants with an array of options to process payments, from point-of-sale systems to online stores. This allows businesses to optimise their payment processing costs and increase their bottom line.
Financial institutions offer advanced security measures such as PCI DSS which helps protect customer data from theft and misuse.
13- Easy integration with existing systems
This allows businesses to quickly and easily integrate their payment processing system with their current technology stack. Merchant banks provide merchants with reliable payment gateways that are compatible with various types of software, such as e-commerce platforms, point-of-sale systems and online stores.
Merchant banks provide developers and service providers with access to APIs which allow them to develop secure applications for businesses to use for payment processing.
14- Faster payment processing
This can significantly improve cash flow. It also also provides customers with the convenience of paying their bills quickly and securely with just a few clicks.
This type of payment is typically free or low cost, making it a cost-effective option for both businesses and consumers.
15- Comprehensive reporting
Reporting provides detailed information about a company's financial transactions, including sales and expenses, customer purchases, supplier costs and more. It also helps businesses keep tabs on their income and outgoings, as well as identify potential areas of improvement.
Acquiring fees
When you sell something and get paid with a card, there's a fee you have to pay, called an acquiring fee or merchant discount rate. Think of it as a small percentage of the sale that goes to the bank to process the payment.
However, it's not just one simple fee. The total cost you pay can be made up of several different charges. These include:
- Charges from card schemes (scheme fees) and issuing banks (interchange fees).
- Costs for additional transaction-related services such as 3D Secure authentication, risk management, tokenization, payment terminals, and gateway services.
It's noteworthy that if your payment service provider (PSP) doubles as your acquirer, these fees might be bundled into their charges.
Blended pricing
Sometimes, if the company that processes your payments is also your bank for these transactions, they might charge you all these fees together. Some banks make it simple by charging one flat rate for everything, which makes it easy to understand but doesn't show you who gets what part of the fee.
Interchange+ or pass-through pricing
Other banks and fintech companies give you a detailed list showing exactly what each part of the fee is for. This is more transparent because you can see exactly what you're paying for and to whom. With the flat rate model, you might end up paying a fixed amount no matter what.
Examples of acquiring banks
There are many banks that can help you accept card payments, like Wells Fargo, HSBC, JPMorgan Chase, and Bank of America. There are also newer tech companies like Planet that specialise in handling payments and might offer better or different services.
To find a bank that can process your payments, you can look at lists provided by card companies like Visa and Mastercard. They have directories for different countries showing which banks or tech companies can do this.
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