An acquiring bank is a financial institution that provides a seller with a line of credit to process credit card transactions. The line of credit is commonly known as a merchant account and functions like a clearinghouse, where credit card payments are processed, held, cleared, and then released to the seller. Acquiring banks serve as the liaison between the seller on one side, and the card association and buyer’s bank on the other.
Electronic payments are an indispensable part of a sales transaction. Buyers expect to have ordinary options to pay for their merchandise. Any seller who refuses to accept credit card payments from the major credit card associations runs the risk of losing business. The card associations, however, do not deal directly with sellers.
Credit card associations provide consumers with a line of credit that is drawn on a bank. This bank makes the payment for the merchandise whenever the card association authorizes a transaction against the buyer’s credit line. Instead of dealing directly with millions of sellers, the card associations and the buyer’s banks require a middleman to vet the seller’s reliability to process credit transactions and to manage the credit card relationship with the seller over time. The acquiring bank is that middleman.
A merchant account is not as easy to open as a regular bank account. Since the acquiring bank is responsible for the reliability of the seller to the card associations, it typically requires a business to prove that it is trustworthy and has references. Credit card transactions can be abused by sellers through fraudulent or unauthorized transactions placed on cards or through unscrupulous business practices that mislead the buyer into paying for something he will later claim does not meet his expectations. Card associations will penalize acquiring banks that keep merchant accounts open with sellers that have over a certain percentage of customer problems.
The acquiring bank provides its facilitation services for a fee, called an acquirer fee. This fee is on top of the interchange fees that the card associations charge for allowing the seller to use the card network. Certain extra fees are applied to the account if the buyer purchases items in a certain way, such as over the phone instead of coming into the store in person. The most expensive way to accept payment is over the Internet. Fees for Internet payments typically outstrip any other sort of presentment, because of the risks associated with a buyer not presenting the card in person or the seller interacting directly with the buyer at all.