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What's The Difference Between Acquiring Banks and Issuing Banks?

Within the merchant services industry there is common terminology that you will hear quite often when attempting to setup your own merchant account or when creating a partnership with a merchant services company.

Two of the more common terms you will hear frequently are acquiring banks and issuing banks.

So what are these banks, and what is the difference between an issuer and an acquirer?

Acquiring Bank vs. Issuing Bank

In short, an issuing bank is the credit card holder’s (customer's) bank and the acquiring bank is the merchant or business’s bank.

The services and products these banks provide go beyond this simple explanation, but it is useful to view them through this lens. Now, let’s get specific.

What is an acquiring bank?

Acquiring banks are banks that work with businesses and merchant services companies to provide merchant accounts and collect the money owed to merchants from card issuing banks.

Merchant accounts are a special type of bank account merchants need to accept credit card transactions. During a transaction, funds from consumer credit cards are deposited into a business’s merchant account via an issuing bank. Once the merchant account receives those funds, they are deposited into the business bank account of the merchant’s choice.

Applying and getting approved to have a merchant account can be a laborious process (although technology is changing that), and that’s because acquiring banks are responsible for returning funds in the case of a payment reversal or chargeback, and there are various costs associated with moving that cash around.

Providing merchants accounts isn’t the only service a particular acquiring bank can provide, but banks that have this service are known as acquiring banks.

What is an issuing bank?

Issuing banks are the banks in charge of issuing credit cards and debit cards to consumers.

This is any bank that provides credit or debit cards to its customers. This could be anyone from CHASE to a local bank or credit union that provides unique cards to its customers. They work with the credit card networks like MasterCard, VISA, and Discover to deliver custom cards for their clients.

Issuing banks are usually in charge of everything on the consumer end of credit cards, including payment portals, rewards programs, customer service etc.

Hopefully, this explanation of Acquiring Banks versus Issuing Banks can help you better understand the merchant services industry, and allow you to make better informed decisions regarding your business merchant account.

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