What Is an Acquiring Bank? Do You Need One? (2023Update)

You have to manage multiple moving parts to accept payments for your small business, and things can get confusing. To sell online, you need an acquiring bank to receive funds from your customers. 

This ecommerce service is separate from your payment processor, which handles the technical side of your transactions, but you can also get an all-in-one solution. 

I’ll explain everything you need to know about acquiring banks and how they work. This will give you a better understanding of your ecommerce workflow and help you choose the right path for your business.

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What Is an Acquiring Bank? 

An acquiring bank handles the necessary financial communication when your business accepts online payments. It also provides the funds to complete the sale while awaiting approval from the customer's bank.

Acquiring banks, sometimes called merchant banks, must have a license to provide these services. They also have to meet complicated regulatory and administrative requirements. 

When you sign a contract with an acquiring bank, you open a merchant account. You'll receive daily payments for gross sales minus fees as agreed in your contract. In exchange for these fees, the bank provides the funds to settle transactions right away. Your customers don't have to wait for the acquiring bank to communicate with their bank.

If you work with a payment service provider like Pay.com, you won’t have to open your own separate merchant account to accept payments. 

What's an Acquiring Bank's Role in Payment Processing?

When you receive online payment for products or services, the acquiring bank manages the transaction on behalf of your business. It reaches out to the customer's bank to get approval for the purchase. For approved transactions, the acquiring bank withdraws the funds and transfers them to you. Otherwise, it will report the reason the purchase was denied. 

The acquiring bank also ensures that transactions stay secure. It must meet the guidelines established by the Payment Card Industry Data Security Standard, so your clients' payment information will stay shielded after they submit an order. If data does get stolen, the acquiring bank assumes responsibility for the breach and covers the loss under the terms of your contract.

If a customer disputes a transaction, the acquiring bank also determines whether they have a valid complaint. For example, your customer tells their credit card company about a duplicate charge from your business. Their bank, known as the issuing bank, reaches out to the acquiring bank to solve the issue. 

What's the Difference Between an Acquiring Bank and a Payment Processor?

The terms payment processor and acquiring bank are often used interchangeably, but they aren't the same. The payment processor provides the software or hardware that acts as the "gateway" for your customers. It links your customer to your company so you can take their payment details. 

Once the payment processor connects you with a customer during a transaction, the acquiring bank relays the necessary information to the issuing bank. Unlike the processor, the acquiring bank doesn't directly communicate with the consumer. However, it does handle communications with the customer's bank.

It might help to think of payment processors as in charge of the technological parts of the transaction. In addition to the software gateway, your payment processor probably offers options like payment terminals, tokenization, risk management and authentication.

Some acquiring banks also take on a payment processing role, which may explain the confusion. As a small business owner, you might contract with a payment processor that has its own contract with an acquiring bank, or you may subscribe separately to each service. 

What's the Difference Between an Acquiring Bank and an Issuing Bank?

The customer's bank on the other end of the transaction is the issuing bank. Consumers can get credit and debit cards from major networks like American Express, Visa, Discover and MasterCard from the issuing bank. 

When someone uses their credit card to buy something from your business, the issuing bank determines whether the customer's account has enough money. It will either approve the transaction and transmit the funds to your acquiring bank or send a message declining the request. 

The Bottom Line: What Can an Acquiring Bank Do for You? 

The acquiring bank plays a vital role in your business transactions – making sure you get paid for your products and services. It communicates with the customer's bank, called the issuing bank, and resolves issues that arise. Acquiring banks aren't the same as payment processors, although many institutions offer both services.

When your online payment system works well, you can focus on running your business. 

Partnering with Pay.com provides the full infrastructure you need to accept payments without stress for you or your customers. We make it easy to get started even if you're an ecommerce novice.