Issuing Bank vs. Acquiring Bank: What’s the Difference?

Acquiring Bank

An Acquiring Bank is a financial institution that processes credit and debit card payments on behalf of merchants. The acquiring bank establishes a merchant account for the business and is responsible for settling the transactions with the card-issuing bank. The acquiring bank typically acts as an intermediary between the merchants and the card networks, such as Visa, MasterCard, etc.

Issuing Bank

An Issuing Bank is a financial institution that issues credit and debit cards to consumers. The issuing bank approves transactions and extends credit to the cardholder. When a consumer purchases a credit or debit card, the transaction is sent to the issuing bank for approval. If the transaction is approved, the issuing bank transfers the funds to the acquiring bank, settling the transaction with the merchant. The issuing bank manages the cardholder’s account, including billing and payment processing.

Difference between Acquiring Bank and Issuing Bank

The main difference between an acquiring bank and an issuing bank is their role in the credit and debit card payment process:

Role: The acquiring bank is responsible for processing payments on behalf of merchants, while the issuing bank is responsible for issuing credit and debit cards to consumers and approving transactions.

Merchant Relationships: The acquiring bank establishes a merchant account for the business and acts as an intermediary between the merchants and the card networks. On the other hand, the issuing bank has a relationship with the cardholder, not the merchant.

Fund Transfer: The acquiring bank is responsible for settling transactions with the issuing bank, while the issuing bank transfers funds to the acquiring bank for approved transactions.

Credit and Risk Management: The issuing bank is responsible for extending credit to the cardholder and managing the cardholder’s account, including billing and payment processing. The acquiring bank manages risks associated with card payments, such as fraud detection and prevention.

Acquiring Bank

A. Role of an Acquiring Bank

The role of an acquiring bank is to process credit and debit card payments on behalf of merchants. An acquiring bank acts as an intermediary between merchants and the card networks (such as Visa, MasterCard, etc.) and is responsible for the following tasks:

• Merchant Account Management: An acquiring bank establishes a merchant account for the business and manages the account, including setting up the necessary equipment and software to process card payments.
• Payment Processing: The acquiring bank is responsible for processing card payments, including authorization, settlement, and funding.
• Fraud Detection and Prevention: An acquiring bank provides fraud detection and prevention services to help protect merchants and cardholders from unauthorized transactions.
• Technical Support: An acquiring bank provides technical support to merchants, including hardware and software support for card payment processing.
• Reconciliation: An acquiring bank reconciles transactions and settles them with the issuing bank.

B. Types of Acquiring Banks

There are several types of acquiring banks, including:

• Independent Sales Organizations (ISOs): ISOs are independent companies that provide merchant services, including payment processing and support, on behalf of an acquiring bank.
• Direct Acquiring Banks: Direct acquiring banks provide merchant services directly to merchants without an intermediary.
• Regional Acquiring Banks: Regional acquiring banks are acquiring banks that operate in a specific region and provide merchant services to businesses within that region.
• Global Acquiring Banks: Global acquiring banks operate globally and provide merchant services to businesses in multiple countries.
• Speciality Acquiring Banks: Specialty acquiring banks provide merchant services to specific industries, such as e-commerce, travel, or healthcare.

Issuing Bank

A. Role of an Issuing Bank.

The role of an issuing bank is to issue credit and debit cards to consumers and manage the cardholder’s account. An issuing bank is responsible for the following tasks:

• Card Issuance: An issuing bank issues credit and debit cards to consumers who use these cards to make purchases.
• Transaction Approval: An issuing bank is responsible for approving transactions, which involves checking if the cardholder has sufficient funds or credit to purchase.
• Credit Management: An issuing bank extends credit to the cardholder and manages the cardholder’s account, including billing and payment processing.
• Fraud Detection and Prevention: An issuing bank provides fraud detection and prevention services to protect the cardholder from unauthorized transactions.
• Customer Service: An issuing bank provides customer service to cardholders, including dispute support and general account management.

B. Types of Issuing Banks

There are several types of issuing banks, including:

• Retail Banks: Traditional banks offer a wide range of financial products and services, including credit and debit cards, to individual consumers.
• Specialist Issuing Banks: Specialist issuing banks specialize in issuing credit and debit cards and may offer other financial products and services to support card usage.
• Affinity Issuing Banks: Affinity issuing banks partner with organizations, such as airlines, hotels, or retail companies, to issue credit and debit cards branded with the partner’s logo.
• Virtual Issuing Banks: Virtual issuing banks operate primarily online and give credit and debit cards to consumers who do not have a traditional banking relationship.
• Co-branded Issuing Banks: Co-branded issuing banks are banks that partner with other companies, such as airlines, hotels, or retail companies, to offer credit and debit cards that are co-branded with the partner’s logo.

Comparison between Acquiring Bank and Issuing Bank

Acquiring and issuing banks play different but complementary roles in accepting and processing card payments. Here is a comparison between acquiring banks and issuing banks:

• Purpose: The purpose of an acquiring bank is to process card payments on behalf of merchants, while the purpose of an issuing bank is to issue credit and debit cards to consumers and manage their cardholder accounts.
• Relationships: An acquiring bank has a relationship with the merchant, while an issuing bank has a relationship with the cardholder.
• Payment Processing: An acquiring bank is responsible for processing card payments, including authorization, settlement, and funding.
•  An issuing bank is responsible for approving transactions and managing the cardholder’s account.
• Services: An acquiring bank provides services such as merchant account management, payment processing, fraud detection and prevention, technical support, and reconciliation.

An issuing bank provides card issuance, transaction approval, credit management, fraud detection and prevention, and customer service.

• Revenue: Acquiring banks generate revenue from fees charged to merchants for payment processing services. Issuing banks generate revenue from interest on outstanding balances and fees charged to cardholders for account management services.

Similarities and Differences

Acquiring and issuing banks are both involved in card payments and play important roles, but they have different purposes and responsibilities. Here are some similarities and differences between acquiring banks and issuing banks:

Similarities:

Both acquiring and issuing banks play important roles in the card payment process and are critical to the success of electronic transactions.

Both acquiring and issuing banks provide security and fraud protection services to protect the cardholder and the merchant from unauthorized transactions.

Both acquiring and issuing banks generate revenue from fees charged for their services.

Differences:

Purpose: The purpose of an acquiring bank is to process card payments on behalf of merchants, while the purpose of an issuing bank is to issue credit and debit cards to consumers and manage their cardholder accounts.

Relationships: An acquiring bank has a relationship with the merchant, while an issuing bank has a relationship with the cardholder.

Payment Processing: An acquiring bank is responsible for processing card payments, including authorization, settlement, and funding, while an issuing bank is responsible for approving transactions and managing the cardholder’s account.

Services: An acquiring bank provides services such as merchant account management, payment processing, fraud detection and prevention, technical support, and reconciliation. An issuing bank provides card issuance, transaction approval, credit management, fraud detection and prevention, and customer service.

Conclusion

Acquiring banks and Issuing banks play critical roles in card payments. Acquiring banks are responsible for processing card payments on merchants’ behalf and providing services to support the merchant while issuing banks issue credit. Debit cards to consumers and manage their cardholder accounts. Both acquiring and issuing banks offer security and fraud protection services, generate revenue from fees for their services and are essential to the success of electronic transactions. Merchants and cardholders need to understand the role and responsibilities of acquiring and issuing banks and choose banks that best meet their needs and provide the services they require.

 FAQs

What is acquiring bank in a payment gateway?

An acquiring bank in a payment gateway is a financial institution that allows merchants to accept card payments from consumers. The acquiring bank acts as a bridge between the merchant and the card networks, ensuring the smooth and secure processing of card payments. With its advanced payment processing capabilities, an acquiring bank can help merchants increase their sales and reach a wider audience by accepting various payment methods and currencies. Whether you’re a small business owner or a large e-commerce platform, partnering with an acquiring bank can help you simplify and streamline your payment processing, increase customer satisfaction, and grow your business.

Can a bank be both an issuer and an acquirer?

Yes, a bank can be both an issuer and an acquirer. Many banks offer both services to their customers, acting as both an issuer of credit and debit cards to consumers and as acquiring banks, processing card payments on behalf of merchants. By offering both services, a bank can provide a comprehensive solution for cardholders and merchants, simplifying the payment process and increasing convenience for both parties. 

By acting as both an issuer and an acquirer, a bank can also improve its risk management and fraud protection capabilities, as it understands the card payment process from end to end.

Issuer and acquirer transactions?

The issuer is the financial institution that issues the card to the cardholder and manages the cardholder’s account. The issuer is responsible for approving the transaction and debiting the cardholder’s account for the purchase amount.

The acquirer is the financial institution that processes the transaction on behalf of the merchant. The acquirer is responsible for verifying that the cardholder has sufficient funds to cover the purchase amount and transmitting the transaction information to the issuer for approval. If the transaction is approved, the acquirer is also responsible for depositing the purchase amount into the merchant’s account.