Acquiring bank vs issuing bank: And what do you need them for

If you’re into e-commerce, you know firsthand that turning visitors into returning clients may be an uphill struggle. Given the ever-growing number of competitors, you have to deliver the uncompromising quality of your products and first-class customer support. You should also make sure your clients can pay effortlessly for their purchases.


But you can’t accept payments without signing up a contract with an acquirer and opening a merchant account. What’s more, you’d better find out the issuing bank role in the transaction process. We are here to help you wrap your mind around the acquirer, the issuer and everything in-between.

What is an acquiring bank and its role in the payment process

When a buyer pays for their purchase on your site, you expect to receive money immediately. However, it isn’t that easy in the digital world as if you have a cash-only business. There are two essential parties involved in the card transaction processing: acquiring bank and issuing bank. 


An acquiring bank (aka merchant acquirer) processes transactions on the merchant's behalf. To be an acquirer, a bank should meet the compliance requirements brought by the card network (e.g. Visa or AmericanExpress). Only then it’s considered to be a licensed member of the payment scheme entitled to deal with merchant’s funds. 


An acquiring bank is a come-between a seller and a card network. It works with merchant’s payments and transfers money to their account. Sure thing, a business owner pays fees for their merchant account kept opened and the acquirer services. The commission highly depends on the money turnover and business type. Only when fees are paid, a seller can get their net balance – money left after covering all charges. 


The acquirer role in the payment processing is to give its final say on the payment outcome, depending on the information received from the issuing bank. For example, if there is no money left on the seller's account, the bank gets an unmistaken signal to decline the transaction. Other common issues that push the transaction to the decline territory are the incorrectly entered CVV-code, expiration date or exceeded spending limit.


A merchant bank is also answerable for any conflicts between a seller and a buyer. Simply put, your chargebacks, refunds and returns are among the acquirer responsibilities. If a customer files a dispute to trigger a chargeback process, an acquiring bank will mediate between the two sides. 


But keep in mind that banks don’t like to deal with too many refunds, so if you have frequent chargebacks, you’ll be asked to open a high-risk merchant account. And it will cost you a lot more than a regular one.

What is an issuing bank: Definition and functions

An issuing bank, as the term implies, issues credit, prepaid and debit cards under the card network authority. They can be Visa, MasterCard, Discover, AmericanExpress, UnionPay or any other. In case you didn’t know: payment schemes don’t produce cards themselves but delegate this to the issuers. What they do is license and control them, as well as determine the parameters of their use and processing.


You may have heard another name for an issuer – a consumer bank. That’s because it is responsible for not only providing consumers with cards but also everything in-between on the customer end. It establishes a relationship with a cardholder and has access to their financial information and credit history. That data comes in useful when deciding how much credit to extend to the client.


An issuer has a big role in the payment process, just like an acquirer. It verifies the card validity, spending limit or whether a client has sufficient funds or not. If everything is alright, a bank sends the cardholder’s funds to the acquirer to continue processing the transaction.


What’s more, an issuer is responsible for customer support and, together with an acquirer, it deals with different sorts of disputes. In case of the unfamiliar transaction, a cardholder contacts an issuing bank to demand a chargeback. In that situation, both an issuer and acquirer investigate evidence, manage communication and come up with their decision. Follow the link to find out more about chargeback processing.

What’s going on behind the scene of every transaction

Now let’s find out what’s happening after a client clicks the checkout button: 

  • once a payer initiates a transaction, their billing details are sent to a payment gateway; 
  • a third-party provider tokenises the client’s sensitive information, scans the payment to make sure it isn’t fraudulent or invalid and transmits the request to a card network; 
  • a card brand sends that request to its issuing bank to authorise the payment; 
  • if a cardholder has enough funds, and all is fine with their card, a bank sends a signal to the acquirer; 
  • an acquiring bank approves or declines the transaction based on the data provided by the issuer;
  • when the approval is received, buyer's funds are captured and transferred to the merchant account; 
  • right after a seller pays fees, they can withdraw their money; 
  • if there is a mistake on any of the stages mentioned above, the transaction is refused. The corresponding signal goes to the payment gateway, and the error is displayed at the checkout page.

Why choose a payment provider

Accepting virtual payments is pivotal to making great headway in your industry. But we realise that signing up a contract with an acquirer may be a back-breaker as it links to opening a merchant account, gathering lots of documents and going through various examinations. 


If you are wondering how to accept payments cost-effectively and without contacting a bank directly, here is a way out. Payment providers are third-party companies where customer support, all the trending payment methods, technologies, security and transparent fees are combined. 


For example, Tranzzo is an all-in-one solution that delivers outstanding payment services to clients anywhere in the world. With us, you can bill buyers on your site with relaxed requirements and zero worries about transaction security.  Contact us to choose an option that suits your business needs best.