Usually, when a card is swiped, the entire payment transaction process occurs seamlessly in just a few seconds, but there are many entities involved behind the scenes. Merchant acquiring is an important component of processing card payment transactions. It constitutes a network of highly advanced intermediaries that help to complete card payment transactions.
What Exactly Is An Acquirer?
In payment card transactions, an acquiring bank (acquirer) acts as a middleman. By serving as a link between merchants, issuers, and payment networks, acquirers allow merchants to accept card payments. They also provide merchants with authorisation, clearing and settlement, dispute management, and information services.
In contrast to issuing banks, acquirer banks provide merchants with the financial backing and infrastructure needed to accept credit cards. Acquiring banks also assume responsibility for securing the flow of data, much of the financial risk involved with credit card purchases, and initial liability in the event of a dispute.
Understanding The Process
A typical transaction begins when the cardholder makes a purchase with their payment card.
After the customer submits their transaction:
- Card information is sent to the payment processor from the merchant.
- The processor submits requests through the card scheme, then the issuing bank receives them.
- Issuing bank checks whether the transaction can be approved by checking if the card account is active, whether the requested amount is available to the account, and more.
- The transaction is either authorised or denied. The decision is then transmitted back the way it came, from card scheme to acquirer, to merchant.
- The merchant sends batches of authorised transactions to the processor, and eventually, funds are transferred from the cardholders’ accounts to the merchant account.
Why Are Acquiring Banks Necessary?
A lot of the actual processing of payment card transactions happens through the payment processor. So, if payment processors are handling the workload, what do acquirer banks bring to the table?
For starters, it’s good to have financial backing.
Processors are not banks, and the services they are able to offer are limited. Some acquiring banks have payment processing solutions. Merchants ultimately need someone to facilitate payments (the processor) as well as someone to extend credit and collect payments (the acquirer).
Risks For Acquiring Banks
There is some risk involved, and acquiring banks also assume responsibility for processed transactions. Since merchant accounts are considered lines of credit (rather than holding accounts), acquirers bear the intrinsic burden of the transactions they process.
They will be responsible for returning funds to the issuing bank and the cardholder in the event of a purchase reversal, refund, or chargeback. This means they will be out of funds before the balance is returned from the merchant, which also comes with additional costs.
As a result, taking the necessary security precautions at all stages of the transaction process is critical for the reduction and prevention of fraud. Therefore, all merchants and acquirers must adhere to the official security standard PCI-DSS.
