An acquiring bank, also known as a “merchant acquirer,” is a financial institution that partners with merchants to process credit and debit card transactions. Acquiring banks provide merchants with the ability to accept card payments by establishing a merchant account and providing a payment processing service.

When a customer makes a purchase from a merchant, the acquiring bank acts as an intermediary between the merchant’s bank and the customer’s bank. Here’s how it works:

  1. A customer initiates a transaction by making a purchase from a merchant.
  2. The merchant sends the transaction details, such as the amount and the customer’s payment information, to the acquiring bank.
  3. The acquiring bank verifies that the customer has the necessary funds or credit available, and that the transaction information is accurate.
  4. The acquiring bank communicates with the customer’s bank to get authorization for the transaction.
  5. Once the transaction is authorized, the acquiring bank sends the merchant an approval message.
  6. The merchant sends the goods or services to the customer.
  7. The acquiring bank sends the funds to the merchant’s bank account.

Acquiring banks also provides merchants with a merchant account, which is an account held by the merchant with the acquiring bank that enables them to accept card payments and process transactions.

The difference between an acquiring bank and a payment processor is that acquiring bank acts as both a merchant account provider and a payment processor, which means it provides both the merchant account and the payment processing service. Payment processors, on the other hand, typically only provide the payment processing service. Some banks might only provide the merchant account and partner with a payment processor to handle the payment processing.

You do need an acquiring bank to have a merchant account, a merchant account is an account that a business holds with a financial institution, and an acquiring bank is a type of financial institution that provides merchant account. In this regard, the acquiring bank is responsible for verifying that the merchant is reputable, that the goods or services are legitimate and for managing the transactions. It is also worth noting that acquiring bank will also handle chargebacks and disputes that might occur during the transactions, making sure that the merchant is protected from fraud and other unwanted activities.