In the world of card payments, two key players often operate behind the scenes: the acquiring bank and the issuing bank. These two entities are central to making that transaction possible.
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20 Aug 2025
By Vellis Team
Vellis Team
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Understanding the difference between an acquirer bank and issuer bank, or in other words, the acquiring bank and issuing bank, is crucial for businesses and consumers alike.
An acquiring bank, also called an acquirer, is the financial institution that works on behalf of the merchant. It enables businesses to accept credit and debit card payments through point-of-sale (POS) terminals, online checkout pages, and mobile apps.
Essentially, the acquiring bank acts as the merchant’s gateway to the global card networks like Visa, Mastercard, or American Express.
When a customer makes a payment, the acquiring bank routes the transaction through the card network and forwards it to the cardholder’s bank (the issuer) for approval. If approved, the acquirer processes the payment, settles the funds into the merchant’s account, and handles any post-transaction issues like chargebacks.
The acquiring bank also plays a key role in fraud management, data security, and ensuring compliance with payment industry regulations like PCI DSS. Its reputation and reliability directly affect how smoothly a business can operate.
On the other side of the transaction is the issuing bank, or the issuer. This is the financial institution that provides payment cards to consumers. When you open a credit card or debit card account, the bank that sends you the card and manages your balance is your issuer.
The issuer’s job is to authorize or decline a transaction based on your available balance, credit limit, or account status. It also shoulders the risk of lending money (in the case of credit cards), monitors for suspicious activity, and handles consumer protections such as fraud claims or refunds.
So, while acquiring banks serve merchants, issuing banks serve cardholders. Both are essential for a successful payment to happen.
Understanding the distinction between acquiring bank and issuing bank is especially important for merchants who want to optimize their payment processing services. Here’s a simplified comparison:
Feature | Acquiring Bank | Issuing Bank |
Who they serve | Merchants | Cardholders |
Core function | Enables merchants to accept card payments | Issues cards and authorizes transactions |
Risk exposure | Merchant fraud, chargebacks | Credit risk, account fraud |
Revenue streams | Merchant fees, transaction fees | Interest, cardholder fees, interchange |
Role in transaction | Requests payment authorization | Approves or denies the request |
Another important difference lies in their communication flow. During a transaction, the acquiring bank requests payment authorization from the card network, which then routes it to the issuing bank. Once approved, the acquiring bank clears and settles the transaction on behalf of the merchant.
Let’s walk through a typical payment scenario to see how issuer and acquirer banks work hand in hand.
This process includes three core stages: authorization, clearing, and settlement. Whether it’s a contactless payment at a café or a purchase on an international eCommerce site, the collaboration between acquirer and issuer remains the same.
In digital transactions, this happens in seconds thanks to automation and cloud-based systems, but the back-end flow is still just as complex.
For merchants, especially small businesses and online sellers, knowing the roles of an issuer and acquirer bank affects your bottom line.
Choosing the right acquirer can also impact fraud protection, transaction approval rates, and overall customer experience. Transparency in fees, partnerships with reputable issuing banks, and efficient settlement timelines are signs of a reliable acquiring bank.
Picking the right acquiring bank or payment provider is a strategic decision. Here are key factors to evaluate:
Keep in mind that your acquirer doesn’t always have direct control over issuing banks, but a good acquirer will maintain strong network relationships that improve transaction speed and acceptance rates.
So, what is a merchant acquiring bank? In short, it’s the bridge between your business and the entire card payment ecosystem. While the acquirer bank and issuer bank serve different sides, they work together closely to power every card-based transaction.
From managing credit card processing fees to offering secure checkout experiences, your choice of acquirer plays a major role in how your business earns and protects its revenue.
Yes, explain how some institutions perform both roles, especially large financial institutions.
No, clarify that issuing banks are chosen by the customer/cardholder, not the merchant.
Both play a role: the issuing bank initiates, and the acquiring bank responds on behalf of the merchant.
Issuing banks detect suspicious consumer activity, while acquiring banks monitor merchant behavior.
Yes, any business that accepts card payments online needs an acquiring bank or payment facilitator.
Mastercard. (n.d.). How payments work: Issuers, acquirers and payment networks. Retrieved August 5, 2025, from https://www.mastercard.us/en-us/business/overview/small-medium-business/learning-lab/how-payments-work.html
Visa. (n.d.). The payments ecosystem: How it all works. Retrieved August 5, 2025, from https://usa.visa.com/run-your-business/small-business-tools/retail-ecosystem.html Investopedia. (2023). Acquiring bank vs. issuing bank: What’s the difference? Retrieved from https://www.investopedia.com/ask/answers/122314/whats-difference-between-issuing-bank-and-acquiring-bank.asp
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