Acquiring BankEdit
An acquiring bank, commonly referred to as an acquirer, is a financial institution that enables merchants to accept card payments by connecting them to the card networks such as Visa and Mastercard and by coordinating with issuing banks to authorize and settle transactions. Acquirers underwrite merchant risk, provide onboarding and underwriting tools, manage compliance obligations, and handle the flow of funds from authorization to settlement. They play a central role in the electronic payments ecosystem, acting as the bridge between a merchant’s point of sale or online checkout and the card-issuing banks that ultimately fund the purchase.
In practice, an acquirer typically partners with independent sales organizations (ISOs) or payment service providers (PSPs) to reach merchants, especially small businesses. Through these partnerships, merchants gain access to processing capabilities, risk controls, and customer support while the acquirer concentrates on risk management, settlement, and network connectivity. The model is designed to scale with the merchant’s pace of growth, from a single storefront to a nationwide ecommerce operation.
What an acquiring bank does
Onboarding and risk underwriting: Acquirers perform merchant screening, verify business legitimacy, and establish underwriting criteria to balance revenue opportunity with the risk of fraud or chargebacks. This process often involves collecting business documentation and assessing the merchant’s cardholder data environment. See Merchant for the general concept of a business that accepts card payments.
Authorization and settlement: When a card is presented for payment, the acquirer forwards the request to the appropriate card network (for example Visa or Mastercard). After the issuer approves or declines the transaction, the acquirer settles funds to the merchant’s account, typically after subtracting processing fees and interchange paid to the issuing bank. See Authorization and Settlement for related concepts.
Risk management and chargebacks: Acquirers monitor transactions for fraud and disputes, respond to chargebacks, and implement risk controls to minimize losses. This includes reconciliation of disputed transactions and applying policies set by card networks. See Chargeback and Fraud for related topics.
Compliance and security: The payments industry operates under data-safety standards designed to protect cardholder information. Acquirers help merchants meet requirements such as the Payment Card Industry Data Security Standard (PCI DSS) and support tokenization and other security measures. See PCI DSS and Tokenization.
Technology and integration: Acquirers provide access to gateways, point-of-sale integrations, and APIs that connect merchant systems to the card networks. This includes support for Payment gateway integration and omnichannel checkout.
Market positioning and pricing: In a competitive market, acquirers compete on service quality, risk controls, reliability, and price. Pricing reflects a mix of interchange set by the networks and the acquirer’s own margin or processing fee. See the section on Pricing and economics for more detail.
Pricing and economics
Interchange and its role: A substantial portion of payments pricing is driven by Interchange fees, which are largely set by card networks and paid to issuing banks. Acquirers then add their own margin on top to cover underwriting, processing, and service costs. The combination determines the merchant’s total cost of acceptance.
Acquirer margins and transparency: Some pricing models present a bundled rate, while others use an interchange-plus or tiered structure. Advocates of greater transparency argue that merchants should clearly see interchange as separate from the acquiring margin to compare options accurately. Critics of complex pricing contend that lack of clarity can obscure true costs.
Competition and disruption: A market with multiple acquirers, ISOs, and PSPs tends to reward lower effective costs and better service. The rise of payment facilitators and specialized processors has pushed some traditional acquirers toward more transparent pricing, faster onboarding, and tighter fraud controls. See Payment facilitator and Independent sales organization for related structures.
Regulation and policy debates: Proposals to regulate payment costs or require greater price transparency attract both defenders and critics. Proponents argue price clarity protects small businesses; opponents warn that excessive regulation can reduce investment in security and innovation. Notable policy episodes include debates over debit-card interchange caps and the broader effects of policy on merchant services. See Durbin Amendment and Interchange fee for context.
Structure of the market and players
Banks versus non-banks: While many acquirers are traditional banks, non-bank processors and fintechs have become important players by offering streamlined onboarding, modern APIs, and lean compliance frameworks. This competitive diversity benefits merchants by expanding options for service levels and pricing. See Acquiring bank and Payment processor.
ISOs and PSPs: ISOs recruit merchants and build local relationships, while PSPs provide end-to-end processing services, often including gateway, settlement, and support. Both play a critical role in scaling card acceptance for small and mid-sized businesses. See Independent sales organization and Payment service provider.
Sponsoring and settlement rails: In some arrangements, a sponsoring bank provides the regulatory and capital backing for a given PSP or ISO, enabling them to underwrite merchants and process payments. See Sponsor bank if exploring the governance side of these relationships.
Technology, security, and trends
Tokenization and data security: Tokenization reduces the exposure of card numbers during processing, which lowers risk and helps compliance with security standards. See Tokenization and PCI DSS.
EMV and fraud reduction: The adoption of EMV chip technology and contactless payments has shifted fraud away from card-present transactions and toward online and cross-border channels in some cases. See EMV for more.
Mobile wallets and omnichannel: The rise of mobile wallets and integrated checkout experiences has expanded the responsibilities of acquirers to support diverse payment streams across in-person and digital environments. See Mobile payment and Payment gateway.
Dispute resolution and consumer protection: As payment ecosystems evolve, the handling of chargebacks, disputes, and fraud prevention remains a central focus for acquirers and merchants alike. See Chargeback and Fraud.