Acquiring bank

An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within an association. The best-known (credit) card associations are Visa, MasterCard, Discover, Indian Rupay, American Express, Diners Club, Japan Credit Bureau and China UnionPay.

The acquiring bank enters into a contract with a merchant and offers it a merchant account. This arrangement provides the merchant with a line of credit. Under the agreement, the acquiring bank exchanges funds with issuing banks on behalf of the merchant, and pays the merchant for its daily payment-card activity's net balance—that is, gross sales minus reversals, interchange fees, and acquirer fees. Acquirer fees are an additional markup added to association interchange fees by the acquiring bank, varying at the acquirer's discretion.

The acquiring bank accepts the risk that the merchant will remain solvent. The main source of risk to the acquiring bank is fund reversals. Consumers can trigger the reversal of funds in three ways:

Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a chargeback.Visa and MasterCard levy fines against acquiring banks that retain merchants with high chargeback frequency. To defray the cost of any fines received, the acquiring banks are inclined (but not required) to pass such fines on to the merchant. Costly fees are generally at the cost of the merchant.

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