Acquiring Bank – What Merchants should know

The use of credit cards is becoming more and more prominent over the years, especially in the United States. It allows people to make purchases even without sufficient cash just by using the card. In doing so, a financial institution such as a bank who issued the card would pay for the purchase. The consumer would then pay off the card issuer. The company or institution which would then receive the payment from the other bank or financial institution is called the Acquiring Bank.

An Acquiring Bank would accept both credit and debit payments in behalf of a merchant for products sold and services rendered. The name is given the term “acquiring” since it shows that the bank or financial institution accepts the transaction initiated with the use of the credit or debit card issued by the other bank. In this scenario, there should be an existing scheme between the two companies in order for the transaction to push through.

The relationship between the merchant account and the Acquiring Bank is connected not by a bank account, but by a line of credit. In most cases, there exist interchange fees between the merchant's bank and the consumer's bank, which is called the issuing bank. This fee is set by a card association which can vary from one merchant industry to another. Aside from that, there are also acquirer fees which the merchant would usually shoulder directly from their bank.

When it comes to risks, the Acquiring Bank shoulders the risk that the merchant, or their client, would remain solvent over time. Because of this, they retain a certain amount of interest regarding the nature of business and the practices of their client or merchant. This is why it is important for the merchant to keep a clean record by maintaining positive transactions and avoiding reversal of funds, which is known as a chargeback. This is a process placed in order to protect consumers from fraudulent merchants and illegal transactions stemming from scams or identity theft. For each chargeback or reversal of fund, the merchant would be penalized. The more this happens, the higher the penalty would be. The exact amount would vary with each bank. In some cases, penalties are known to reach up to a hundred dollars or even more. They do this again because they shoulder the risk of not getting paid due to the actions or limitations of the merchant.

from Blindbid.com