Why Do You Need An Acquirer To Process Payments?
When you want to process payments on your website, you need to sign an acceptance contract with an acquirer. What’s hiding behind the acquirer term and why do you need one?
The acquirer, also known as member bank, merchant bank or an acquiring bank is a bank or financial institution that mainly handles credit or debit card processing for other company. An acquirer or acquiring bank acts as an intermediary between the issuing banks and the merchants (what is a merchant account) within the card association in electronic transactions. The issuing bank is in charge of the data flow and connects acquirer and customer through the card network so that customer transaction can be verified.
As the name implies, this financial institution accept or acquirer credit card payment from the card issuing banks within an association. Whenever a cardholder uses a credit or debit card in a purchase, the acquiring bank will either authorizes or rejects the transaction based on the data or information the issuing banks and card network have on record about that card holder’s account.
How to connect with card association?
Acquirer or acquiring banks can also be understand as a registered member of a card network, such as MasterCard or Visa, manage and accept transaction on these credit or debit card networks on behalf of merchant. The acquirer or acquiring banks enters into a contract with the merchant. Based on the contract agreement, the acquiring banks exchange funds with issuing banks on behalf of the merchant. In order for a safe transaction to be established, the acquirer/acquiring banks require a payment processor.
Payment processor is the provider of software technology that establishes the connection with the card associations. The processor can assume two forms: it can be a completely independent institution that just works in partnership with the bank or can be a bank division.
Authorization (more about card authorization) is given to acquirer or acquiring banks to issue cards with its respective logo by the card association. The most common known card associations are MasterCard, Visa, American Express, Discover, Diners Club, China UnionPay and Japan Credit Bureau.
Aside from transaction authorization and managing all transaction that a cardholder completes with his or her debit or credit card, acquirer also offer some other special services including: assumes all the risk and responsibility associated with all payment transaction and its processes. It is because of acquirer charges fees for its service or are paid a certain percentage of each transaction fees imposed by the institution on merchants.
Due to the key position of acquiring bank in the payment chain and the high amount of risk it is subjected to, the security of electronic payment is their highest priority. For this, they are involved in development of electronic point of sale security standards like the “Payment Card Industry Data Security Standards” (why PCI is important).
Moreover, acquirers are also in charge of clearing and settlement of transaction in a case of fund reversals, chargebacks (what is a chargeback) and other various situations associated with card transaction.
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