Over the past few decades, the financial world has changed rather rapidly, and in a big and impressive manner. The financial systems have turned faster, better, safer, and seamless to a great extent. The most important parts of any transaction – payment and receival have become as easy as a card swipe or a few taps on the smartphone screen.
In current times, it is super easy for businesses to receive payments and process refunds in a matter of seconds. Every time a customer goes to the market or is shopping online, they have multiple options to make secure payments from credit card, debit card transactions, e-wallet payments, to many other forms of online payments.
What Is An Acquiring Bank
Do you know who makes it possible? Well, there are acquiring banks that help process such instant payments. An acquiring bank, commonly referred to as an acquirer, is a financial institution or bank that allows merchants to accept payments from customers and clients. In simple terms, the acquiring banks process and facilitate the credit and debit card payments made by customers on behalf of the merchant.
How Does The Acquiring Bank Do It
The acquiring banks set up the merchant account for the merchant for all of their business-related transactions. A merchant account is a kind of current bank account that is primarily made for businesses to make payments from different modes. The merchant signs a contract with the acquiring bank with all the services and line of credit facilities clearly specified in the document. As per the agreement, the merchant allows the acquiring organization to carry out fund exchanges with the card-issuing banks and the business.
What Is The Net Balance
All the payments and funds that the merchant receives from the customer are sent to the account where the net balance is equivalent to total sales minus refunds, acquirer fees, and exchange fees. In case you do not know, the acquirer fee is the charge levied by the acquiring bank on the merchant for their services as the payment facilitator. The fee changes from one acquirer to another. Some examples of the acquiring banks include American Express, TD Canada Trust, Elavon, Global Payments, Bank of American, and First Data. The merchant acquirers have relationships with card issuing companies to enable card transactions for the merchant. The acquiring company and card networks work so closely that oftentimes the two are wrongly used interchangeably.
Top Card Companies In The World
There are a lot of card issuing organizations across the world. Some of the most popular institutions include:
- Visa: America’s largest card payment organization
- Mastercard: Multinational financial services corporation
- China Union Pay: The world’s largest card payment organization with a major market in China
- Japan’s Credit Bureau: Japan’s payment services company that is based out of Tokyo, Japan
- Indian Rupay: India’s card service company that focuses on extending enhancing online payment systems
There are more acquirers such as Discover and Diners Club, etc. The companies generally offer all kinds of online payment options and can work internationally directly or through card reciprocal agreements. Anybody with a card has the power.
What Is The Difference Between Acquiring Banks And Payment Processors
The core of the difference between an acquiring bank and payment processor lies in the role of the two. While the role of the acquirer is majorly to prepare and maintain the merchant’s account, payment processors act as the mediator between the merchant’s business and the bank. Processors are tech companies with advanced infrastructure that authorize transactions. The processing companies make sure the funds reach the right account,
The role of the acquiring bank extends much wider. The institution has to accept the financial responsibility of card transactions. What is more, there are more laws and regulations for merchant acquirers than payment processors. The merchant acquirers need to follow the latest regulations, car brand rules, and relevant financial laws. So, it’s not just as it appears, in fact, much more goes on in the background for every transaction.
One more thing that you should know is that most large acquirers also provide payment processing services to their clients. However, in order to offer account management services to the merchants, the payment processor companies need to form relationships with the acquiring banks. The point of the story is that as a merchant you don’t necessarily need to go to a payment processor and acquirer separately. Instead, you can find one organization that provides both services. That will be more convenient for the management of your business.
Risk Factors And Transaction Process
It is the merchant acquirer’s responsibility to bear the risk of the solvency of the merchant. In addition to that, the prime source of the acquiring company’s risk is that the customers may request the reversal of transactions on numerous occasions due to a variety of reasons.
Every time the customer pays for a product or service, the transaction is processed through an acquiring bank. The merchant acquirer will do the job of the processor, and authorize the transaction. In this process, the acquiring company confirms two things:
- Whether or not the cardholder’s issuing bank is allowing the transaction to take place
- If the customer has enough funds to make the transaction
Once these two things are certain, the payment will be processed and the merchant will be able to accept the payment. Carrying out this entire process correctly is the responsibility of the merchant.
The Bottom Line
Proper authorization and management of transactions can be tough tasks for merchants. However, with the help of acquirers, the job seems pretty effortless. At the same time, the underlying mechanism for any transaction is pretty complex. There are several parties involved in the processing and securing of the payments.
There are many service providers available in the financial market today. Ideally, you should look for one that provides the services of both the acquiring bank and payment processor. This way, you won’t have much to bother about.
We hope the information we put up above proves to be helpful to you!