Acquiring financial institution

What is an acquiring financial institution?

An acquiring financial institution, also called an acquirer, is a bank that processes credit or debit card transactions for businesses. A business must have a relationship with an acquiring bank to be able to accept credit card payments.

Deeper definition

An acquiring financial institution has a contract with the businesses it processes credit cards for. It deposits the daily transactions into the merchant’s account as well as takes out the credit card processing fees, including interchange and acquirer fees, at the end of the month.

The acquiring financial institution, also called the member bank or merchant bank, acts as a go-between that connects the merchant and the issuing bank, which is the company that issues the credit cards. It is this relationship that allows the verification of each customer transaction.

The acquiring bank takes on all of the risk associated with approving credit card transactions. The acquiring bank either approves or rejects each customer transaction, using information stored in the customer’s account by the credit card issuer. It also handles clearing the accounts and performing any chargebacks.

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Acquiring financial institution example

Nash buys a duck at the De Brutus duck store, using his credit card to pay. De Brutus sends a charge to its acquiring financial institution Short Bank, which pings Nash’s bank account and determines he has the funds. Short processes the transaction and credits the De Brutus store that amount at the end of the month, less its processing fees.