Acquiring banks and issuing banks (sometimes referred to as “acquirers” and “issuers,” respectively) are two important institutions in the credit card processing ecosystem.

Knowing the role that each bank plays when you process a transaction can help you understand how payments are processed and who is responsible for each step. This can be useful if an issue arises, and you need to know who to contact.

What is an Issuing Bank?

Simply put, an issuing bank is a financial institution that issues the credit card to the cardholder and allows them to make purchases at retailers in person and online with that card. Most major banking institutions will offer credit cards to their banking customers, with whom they have established relationships and access to their financial information and credit history. They will use this information when deciding how much credit to extend - or issue - to the cardholder.

Issuing banks face the risk that a cardholder will not pay back the amount owing on their credit card for purchases that they have made. But because they have access to consumer’s financial information, they are able to hedge their risk with alternative ways of getting the funds back from a consumer if they default on what they owe. This risk is why issuing banks provide credit cards to cardholders instead of the card brands, like Visa and Mastercard, doing it directly.

If a cardholder has an issue with an unfamiliar transaction or suspected fraud, they will contact their issuing bank.

What is an Acquiring Bank?

When you process a transaction for a customer who has come into your store location or submitted an order through your online store, the transaction is processed through an acquiring bank. Acquiring banks allow merchants to accept credit card payments from cardholders and their issuing banks. When a cardholder makes a purchase, the acquiring bank works on behalf of you, the merchant, to confirm with the cardholder’s issuing bank that they can process the payment and that the cardholder has the funds available for the transaction.

Acquiring banks may be less visible to merchants and cardholders compared to issuing banks because they often work behind the scenes while their partners, payment processors like Helcim, are the ones who are working directly with you the merchant to help you sign up for your account and providing customer service when questions arise.

Some examples of acquiring banks are First Data, Bank of America, Global Payments, Elavon, and Wells Fargo.

Both issuing and acquiring banks play an important role in credit card processing. If you’d like to learn more about how credit card processing works check out the Understanding Payments section of the Helcim Blog.