If you are an e-commerce business that is starting out, you must have heard about these terms and wondered what they mean. So, let’s break it down. All e-commerce transactions involve an acquiring bank and an issuing bank. The issuing bank is the cardholder’s bank which issues their card. An acquiring bank is the one that the merchant (read your business) has their account with. But where do acquirer and issuer figure in the payment process and what role do they play?
Acquirer Vs. Issuer
Here’s a quick look if you are short on time.
An issuing bank:
- Provides credit or debit cards to customers
- Allows customers to make payments via card networks
- Authorizes or declines transactions for the cardholder
- Transfers funds from cardholder’s account when a payment is authorized
An acquiring bank:
- Maintains the merchant’s business account
- Allows merchants to accept payments through card networks
- Processes payments on behalf of the merchant
- Passes along consumer transactions and credits it to your account
The payment processing cycle in an e-commerce transaction usually follows the following steps:
- The customer makes a purchase at your e-shop and enters their card details into the payment gateway
- The payment gateway sends this info to the payment processor, who submits it to the acquiring bank
- The acquiring bank submits this to the card network, which forwards it to the issuing bank
- The issuing bank verifies the cardholder’s details, approves the payment, and submits it to the card network
- The card network forwards the funds to the payment processor, who then transfers the amount to your merchant account
What are their roles?
An acquiring bank (also known as acquirer) provides a business with a merchant account and can facilitate card payments on behalf of the merchant. The acquirer ensures your transactions are routed properly through the card network. Once a transaction is approved by the issuer bank, the acquirer collects the funds and credits them to your account. Merchants need to work with an acquirer in order to accept credit/ debit card payments from customers.
The acquirer assumes some financial risk in processing payments. In case of a data breach, part of the liability also falls on the acquirer. Hence, they take strong precautions and adhere to strict PCI DSS guidelines to ensure payments are secure. Acquirers could also be liable for refunds or chargebacks if a business goes bankrupt. Hence, a merchant’s risk potential is thoroughly assessed before they are granted an account. When you work with Novalnet, you do not need to work with individual acquirers as we do it for you. We have relationships with multiple acquirers to ensure your business runs smoothly in the markets you operate. Plus, we process payments in a fully-secure PCI DSS environment, ensuring you don’t have to worry about fraud and data breaches.
An issuing bank (also known as issuer) represents the customer. It provides credit/ debit cards to customers and approve or decline transactions for the cardholder. The issuer deducts funds from the cardholder’s account and forwards them to the acquirer via the card network. Issuing banks offer Visa or MasterCard branded cards to customers. Others, like American Express or Discover, are both issuers as well as card networks, and hence provide cards to customers as well.
How can Novalnet Help?
Novalnet works with multiple acquirers across Europe in local territories. This helps you get the benefits of multi-acquirer relationships but with the ease, flexibility, convenience, and costs of a local supplier. We serve as your singular point of contact for all things payments – so that you can focus on your business and leave the rest to us. We are a global PSP that is trusted by Europe’s leading brands to handle their payments. Our state-of-the-art technologies and methods help you accept payments globally. From our instant payment plug-ins to our AI-based risk management tools, we have the resources to get your payments up and running in no time, and with zero hassle.
Reach out to us today to know more.
Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.