The process of moving money from one party to another involves several entities, all with specific roles to play in moving the transaction along its way. Standing at either end of the transaction are two critical players – the acquiring bank and the issuing bank. What is the difference between the two?
The terms acquiring and issuing refer not to specific banks, but to where those banks are in the transaction flow. Put simply, the acquiring bank is the bank on the merchant end of the transaction, and the issuing bank is the cardholder or consumer’s bank.
Banks can and commonly do hold both roles. Many large banks, for example, issue credit cards and offer deposit accounts as part of their consumer-facing personal services (issuing) and also provide what they call merchant services (acquiring).
These two ends of a transaction are a fundamental part of understanding how payments work, so it’s worth taking a little closer look at them.
Payment Transaction Flow
When a consumer presents a card or other digital means of payment at a merchant, that transaction goes first to the acquiring bank.
For larger merchants or those that obtain their own merchant accounts, their bank is the acquiring bank. In scenarios where merchants accept payments with the help of a payment facilitator, and so do not have merchant accounts of their own, the acquiring bank will be the payment facilitator’s bank.
Either way, the acquiring bank provides services that otherwise enable merchants to accept – or “acquire” – digital payments.
Once it receives a payment transaction, an acquiring bankroutes it through the card networks to the issuing bank on the consumer end of the transaction. (The illustration below by Infinicept details how the transaction flows through the different entities.)
The issuing bank issued the payment card or otherwise holds the account from which the consumer draws funds to make the payment. When it receives a transaction, it reviews that consumer account to make sure, for example, the consumer has enough funds or available credit. If so, it then authorizes the transaction.
It then routes the transaction back through the card networks to the acquiring bank. When the transaction is settled, the acquiring bank accepts the movement of funds from the consumer’s account at the issuing bank into the merchant’s account.