Acquiring bank
From Wikipedia, the free encyclopedia
An acquiring bank (or acquirer) is the bank or financial institution that accepts payments for the products or services on behalf of a merchant. The term acquirer indicates that the bank accepts or acquires transactions performed using a credit card issued by a bank other than itself.
[edit] Merchant Accounts
The acquiring bank contract with the merchant is informally referred to as a merchant account. The arrangement is in fact a line of credit and not a bank account. Under the contract, the acquiring bank exchanges funds with issuing banks on behalf of the merchant, and pays the merchant for the net balance of their daily payment card activity: gross sales, minus reversals, interchange fees, and acquirer fees.
Interchange fees are fixed rates set by the card association, varying by merchant industry. Acquirer fees are an additional markup added to association fees by the acquiring bank, varying at the acquirer's discretion.
[edit] Acquirer Risk
The acquiring bank accepts the risk that the merchant will remain solvent over time, and thus has an incentive to take a keen interest in the merchant's products and business practices. Crucial to maintaining an ongoing positive balance is the limiting of reversals of funds. Consumers may trigger the reversal of funds in two ways:
- A card refund is the return of funds to the consumer, voluntarily initated by the merchant.
- A card chargeback is the return of funds to the consumer, forcibly initiated by the consumer's issuing bank.
Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a chargeback. Visa and MasterCard levy fines against acquiring banks that retain merchants with high chargeback frequency. To defray the cost of any fines received, the acquiring banks are inclined (but not required) to pass such fines on to the merchant.
