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What Role Do Acquiring Banks Play?

An acquiring bank (merchant bank) performs a variety of functions concerning online credit card processing and electronic commerce. A real acquiring bank doesn’t have an actual brick and mortar building or office where you can just walk in and open a checking account. They carry out critical functions without the need for a physical presence since they primarily deal with other providers of merchant accounts and business-based financial institutions overall.

Today, more products and services are bought online through credit card processing transactions, e-checks, and ACH transfers more than ever. Acquiring banks mostly serve as a kind of middleman for these electronic transactions. Overall, they’re the connection between merchant accounts and the banks that issued the credit cards. The acquiring bank is liable for the proficient flow of information and data that inevitably transfers between the two.

There are a number of steps that take place in the average electronic transaction process. First, a client decides to buy a particular item at a store. She swipes her credit card in the terminal or sometimes enters her credit card info onto a website’s checkout page. Upon verifying the data, she proceeds making the purchase. The data then transfers to the acquiring bank in order to be processed. The acquiring bank is informed that the holder of the credit card wishes to buy the item and then charges the funds to her card. The acquiring bank notes the request and subsequently transmits the information along to the appropriate credit card issuing bank in order to be approved.

It’s the issuing bank rather than the acquiring bank that literally approves or declines the transaction. If it’s approved, the issuing bank transmits an authorization code directly back to the acquiring bank who then notifies the store of the decision. If the transaction is approved, the funds are then transmitted from the issuing bank via the acquiring bank minus the interchange fee for the client’s transaction. Next, the acquiring bank will then take a cut from the entire amount of funds received from the issuing bank and will proceed to deposit the remainder into the checking account of the merchant or other chosen business bank account.

Due to the ever-evolving competition from other kinds of financial institutions and banks who continue to progress in technological advances, several acquiring banks are looking at their overall business structures in order to incorporate key changes that would eventually support new growth.


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