For small businesses that accept customer payments, every transaction tap, swipe or click initiates a complex series of actions behind the scenes. It’s a good idea to familiarise yourself with the main players that process your customer transactions, such as acquiring banks.

The acceleration of payments technology has radically altered the way businesses, credit card networks, payment processors and banks interact with customer transactions. Businesses have more options for accepting and processing payments, and more financial institutions offer overlapping payments functionality. It’s important for businesses to clearly understand the technical aspects of receiving customer payments and how acquiring banks are involved.

We’ll cover what an acquiring bank is, what role they play in the payments process, and what businesses need to know about acquiring banks to navigate customer payments.

What's in this article?

• What is an acquiring bank?
  
• Acquiring bank vs issuing bank
  
• Acquirer vs payment processor
  
• How to choose an acquirer that meets the needs of your business
  
• Acquiring bank costs and fees
  

What is an acquiring bank?

An acquiring bank, also referred to as an "acquirer", is a bank or financial institution that processes customer credit or debit card payments on behalf of the business and routes them through the card networks to the issuing bank.

Acquiring banks allow businesses to process payments beyond the point of sale (POS) and receive funds from customers. They receive debit and credit card numbers from the business’ payments processor, interface with the credit card networks and customers’ issuing banks to get payments authorised, and then receive the funds.

Acquiring bank vs issuing bank

The terms "acquiring bank" and "issuing bank" refer to the different roles that financial institutions play in a customer transaction, during which the acquiring bank is the business’s bank and the issuing bank is the customer’s bank.

The issuing bank gives – or "issues" – customers their credit or debit cards on behalf of the card networks, and it also issues the funds transferred in a card transaction. The acquiring bank takes – or "acquires" – the funds from the transaction.

Here’s what the process looks like for acquiring and issuing banks during a customer transaction:

1. The customer presents their credit card, debit card or digital wallet at the POS to make a purchase. This could be a POS terminal at a brick-and-mortar retail location, a card reader on a mobile business’s device, or the checkout interface on an e-commerce website.
   
2. The payment processor transmits the key payment information to the acquiring bank first, including the amount of funds to be transferred and the card number to be used for payment.
   
3. Once the acquiring bank has received the payment request, it connects with the issuing bank via the card network attached to the payment method. For example, if a customer uses a Visa debit card issued by Wells Fargo, the acquiring bank will receive that transaction and use the Visa card network to connect with Wells Fargo, the issuing bank.
   
4. After the issuing bank receives the request from the acquiring bank, it checks the cardholder’s account to see if they have enough credit or available funds to cover the transaction.
   
5. If the funds are available, the issuing bank authorises the payment and notifies the acquiring bank through the credit card network.
   
6. Then the issuing bank releases the funds, which the acquiring bank accepts and deposits into the business’s account.
   

Acquirer vs payment processor

Payment processing providers receive all the key information in any given transaction, like credit card number and payment amount, and transmit that information to the acquiring bank. The acquiring bank then obtains payment authorisation and receives the funds.

Although payment processors and acquiring banks have different roles in the payment process, the same financial institution can perform these roles. Some banks provide both business accounts and payment services. But more often, businesses obtain these services from different institutions.

How to choose an acquirer that meets the needs of your business

How your business interacts with acquiring banks will vary, depending on how you access merchant account services. You may work with a provider that offers payment processing, merchant accounts and acquiring services, or you might need to get payment processing and acquiring services from different providers. If you use Stripe, you don’t need to worry about getting an acquirer at all, since Stripe provides both payment processing and acquirer functionality. For independent businesses, scalable, all-in-one payments support is more appealing than piecing together multiple solutions for payments facilitation and business banking.

If you do business on a third-party platform or marketplace that has payments support integrated into its business experience, then you likely won’t have to obtain a separate merchant account with an acquiring bank. These platforms have increasingly added payments capabilities to streamline business and customer experiences and monetise transactions.

If your business accepts payments in places other than third-party platforms or marketplaces – for example, if your business operates in person or you have your own ecommerce website – then you’ll need payment processing and acquirer functionality.

Some payment processors only offer payment processing or acquirer support, so you’ll need to obtain a separate processor for each function. There are many websites for financial institutions that offer acquirer services to businesses. You can start by searching for business acquirers in your area or for those who specialise in your industry. Then you can compare your options based on criteria such as fee structures, perks, and other pros and cons.

Each acquirer will have different requirements for opening a merchant account. But in general, plan on providing the following information:

• Business type (sole proprietor, LLC/LLP, C corporation, S corporation, government, nonprofit, etc.)
  
• Industry
  
• Unique Taxpayer Reference (UTR) or tax ID
  
• Business address
  
• Where is the business incorporated?
  
• Date when you started doing business
  
• Type of products and services that you offer
  
• Annual revenue or transaction volume
  
• Business banking information (where you want transaction payouts to be sent)
  
• National Insurance number
  
• Home address
  
• Personal phone number
  
• Date of birth
  

Acquiring bank costs and fees

Since most businesses accept and process payments through comprehensive payment solutions like Stripe, the processing fees that they pay cover many functions, including access to acquiring banks. Stripe’s transparent, integrated pricing model is one of its primary advantages compared to traditional payment processing solutions obtained directly from acquiring banks. Stripe’s pricing depends on an individual business’s scope of services, but credit card and digital wallet transactions are priced at 2.9% + 30¢ per successful card charge.

Even though Stripe customers don’t directly pay acquiring fees, let’s talk about how they work:

Businesses or payment facilitators typically pay transaction fees that are distributed to the acquiring bank, the issuing bank and the credit card networks. Businesses’ banks are charged "interchange fees" by the credit card networks on each transaction. These fees are shared with the issuing bank, which allows them to generate revenue without charging their cardholders.

Transaction fees are calculated using a number of factors. Each credit card company has its own set of rules that dictates interchange fees. Here are some of the most common ones:

• Transaction properties
  These properties include information such as the transaction amount and location.

• Type of card
  Card type refers to whether the payment card uses an EMV chip or contactless payment, the type of credit card (gold, platinum, rewards, etc.), if it’s a prepaid or debit card, and the funding source.

• Device properties
  Device properties describe how and where the charge was made, such as whether it was an online or in-person payment, the merchant category code, and if the card was present or not.

Because there are so many rules to calculate interchange fees, most acquirers use pricing models that consider a business’s average transaction size, volume of transactions, typical payments properties and business type. The acquirer then puts together a fee structure that aligns with the interchange fees that they are most likely to incur on behalf of that business.