Acquiring banks play a vital role in the current payment ecosystem, so understanding their function can be helpful, especially if you’re a new ecommerce merchant still learning the ropes.
Keep reading to learn more about acquiring banks, what they are, and how they work.
What is an acquiring bank?
An acquiring bank is a financial institution that processes payments on behalf of merchants.
Acquiring banks are also called: Merchant acquiring banks and acquirers.
To process payments, acquirers must undergo a rigorous and intricate licensing process, which is why getting licensed as an acquirer is so valuable. Merchants pay good money to acquirers to process payments for them.
Note: Pixxles is authorised by the Financial Conduct Authority, so we don’t need a third party’s license to provide payment services. We provide them directly.
Acquiring bank example
Let’s say a customer makes a purchase using a Barclays credit card, and the merchant’s acquirer is Worldpay.
In this case, Worldpay would communicate with Barclays (which is the customer’s issuing bank) through the credit card network to ensure the customer has sufficient funds.
What are the major acquiring banks in the UK?
Acquiring banks range from well-known financial institutions to fintech platforms.
With that said, the major acquiring banks in the UK include:
- Lloyds Bank
- Santander UK
Acquiring banks may work directly with merchants or through partnerships with payment processors and Independent Sales Organisations (ISOs).
Acquiring bank vs issuing bank: What’s the difference?
The fundamental difference between an acquiring bank and an issuing bank is that the acquiring bank manages the merchant’s side of a transaction, while the issuing bank handles the customer’s side.
An issuing bank is the issuer of funds, and an acquiring bank is that which acquires them. It’s worth noting, though, that both banks work in tandem through the payment network (like Visa or Mastercard) to facilitate transactions.
In a typical transaction, here’s what happens:
- The customer first makes a purchase.
- The acquiring bank then communicates with the issuing bank to check for funds.
- The issuing bank confirms and authorises the transaction.
- The acquiring bank processes the transaction, and the merchant gets paid.
A more detailed look at acquiring bank vs issuing bank
What an acquiring bank (merchant’s bank) does
Merchant account management: Provides merchant accounts to businesses.
Transaction processing: Receives transaction requests from payment processors and forwards them to the card networks (Visa, Mastercard, etc.).
Fund transfers: Sends funds from the issuing bank to the merchant’s account.
Merchant compliance: Ensures merchants comply with card network rules and regulations.
Risk management: Evaluates and manages the risks associated with merchant accounts.
Settlement of transactions: Manages settlements so that merchants receive their funds.
Merchant support: Provides support related to payment processing to merchants.
What an issuing bank (cardholder’s bank) does
Card issuance: Issues credit cards and debit cards to customers.
Customer verification: Verifies the cardholder’s details and account during a transaction.
Transaction authorisation: Approves or declines transactions based on the cardholder’s account status and available funds.
Funds management: Deducts the transaction amount from the cardholder’s account and transfers it to the acquiring bank.
Customer support: Provides support to cardholders regarding card-related queries, disputes, and issues.
Fraud prevention: Implements security measures to prevent unauthorised transactions and fraud.
Billing and statements: Manages billing cycles, provides monthly statements, and manages the collection of payments from cardholders.
Interest and fees management: Applies interest, fees, and charges associated with the cardholder’s account and transactions.
Dispute resolution: Manages chargebacks and dispute resolutions between merchants and cardholders.
Acquiring bank vs payment processor
An acquiring bank is not the same thing as a payment processor.
However, a single institution or company can act as both an acquirer and a payment processor.
The main difference between an acquirer and a payment processor
An acquiring bank oversees a merchant’s account so that money gets deposited correctly. Additionally, an acquirer ensures that payment compliance standards are met.
A payment processor, on the other hand, is more like a transaction coordinator, ensuring that money moves smoothly from the issuing bank to the merchant’s bank.
The reason payment processors are used is they relieve the technical burden and complexity associated with managing digital transactions.
Acquiring bank vs payment processor comparison
|Acquiring Bank Functions||Payment Processor Functions|
|1. Provides and manages merchant accounts||1. Assists electronic transactions|
|2. Forwards transaction requests to card networks||2. Helps facilitate transaction authorisations|
|3. Transfers approved funds to the merchant’s account||3. Ensures secure and encrypted transaction data transfer|
|4. Ensures merchants adhere to card network rules||4. Implements security protocols to prevent fraud|
|5. Manages risks related to merchant accounts||5. Integrates payment gateways for online payments|
|6. Handles the settlement of transactions||6. Supports various payment methods|
|7. Offers support related to payment processing||7. Provides transaction reports and analytics|
How to choose the right acquirer for your business
To choose the right acquirer for your business, you’ll want to evaluate their fee structure, industry expertise, and customer support. Additionally, you’ll want to find out if they have the technical capacity to meet your sales volume.
At Pixxles, you receive:
- All your banking services and needs in one spot
- Live support for all of your business’s financial needs
- Transparent pricing
- Commitment to NO hidden fees
- Tracking your transfer in real-time
- Greater control over your business finances with Pixxles Business Accounts
- Simple, low-fee currency exchanges with competitive rates
Want to learn more about Pixxles?
For general information: Visit our Pixxles Business Banking page.
For pricing: See our Business Banking Pricing page.
What are acquiring fees?
Acquiring fees are charges incurred by merchants for using the services of an acquiring bank.
These fees can include transaction charges, monthly account maintenance, and additional fees based on the merchant’s agreement with the acquirer.
For example, a merchant might pay a fee of 2% + 20p per transaction through its acquiring bank.
How does an acquiring bank make money besides transaction fees?
Besides transaction fees, acquiring banks can make money through the following means.
Charging merchants a one-time setup fee for establishing a merchant account or integrating payment systems is common for acquiring banks.
An acquiring bank might impose penalty fees on merchants for non-compliance or violations of agreed-upon transaction thresholds.
Acquiring banks charge Merchant Services Providers (MSPs) a licensing fee, which is often passed through to the merchant and blended with the merchant pricing.
Acquiring banks may offer services like fraud prevention tools, analytics, or security solutions that come with additional charges.
Cross-selling other financial products
Acquiring banks might cross-sell various financial products and services to merchants, such as business loans.
» MORE: What is Interchange++?
Can an acquirer fire a merchant?
Yes, merchants can indeed be let go by an acquirer.
This is because when an acquirer accepts a new merchant, it is an at-will engagement. Naturally, if the relationship sours, an acquirer has the right to protect itself.
Remember that an acquiring bank takes on a degree of risk every time it chooses to accept a new merchant. So, if that merchant is breaking the law or engaging in practices that are potentially damaging, the acquiring bank may choose to end their relationship.
Merchant reconciliation program
In certain cases, an acquirer may not fire a merchant but instead put them into a reconciliation program. This could happen, for example, if a merchant exceeds a certain threshold for fraud or chargebacks.
If the reconciliation program fails to rectify the issue, the merchant may then lose their account and end up blacklisted. As a merchant, you DON’T want this to happen.
At Pixxles, we work hard to keep you off the merchant blacklist by stopping problems with your account before they escalate.
Read our Security & Compliance page to learn more.
Acquiring banks and their future role in digital payments
Digital payments and online shopping have risen dramatically in the last few years. What role traditional acquiring banks take in light of this will largely depend on their ability to adapt and innovate.
Acquiring banks have historically acted as the facilitators between merchants and issuing banks. Now, as all-in-one digital payment platforms offer convenient solutions to busy ecommerce merchants, acquiring banks will need to ally with fintech companies to stay competitive.
Additionally, acquiring banks will need to prioritise cybersecurity to safeguard digital transactions in a future heavily impacted by AI technologies.
Digital banking with Pixxles
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