What is Acquiring Bank, Card Scheme, and Issuing Bank?

Acquisition bank, card scheme, and issuing bank are common terms used in the banking sector. You may be familiar with their meaning but don’t exactly know what they mean. Let’s learn what they are.
What is an Acquiring Bank?
An acquirer bank (also known as credit card bank, merchant bank, or acquirer) is a licensed financial institution that is a member of a card association. It opens merchant accounts for businesses and accepts payments through the credit network and payment processor. An acquirer can also serve as a settlement bank, which facilitates settlement and communication of merchant payments. Visa and Mastercard, for example, have their own regulations and compliance requirements that applicants must meet before they are allowed to become an acquirer.
Merchants who wish to open accounts with an acquiring bank must first provide information about their identity and ownership. The bank will also need their business records to assess the risk associated with managing the merchant’s account. A contract specifying the details such as fees and reserve funds, holds, etc., will be drawn if the bank approves the merchant’s application for an account. Depending on the bank, this contract can be either standard or tailored to the merchant’s requirements.
Role of Acquiring Bank
Acquiring banks facilitate communication between credit agencies and businesses and ensure that transactions are secure. They provide merchant accounts and unique ID numbers to business establishments. These unique ID numbers and merchant account numbers are required to process transactions using major credit card networks like Visa, Mastercard, and American Express. To avoid fraud or breach of sensitive information, every acquiring bank must follow the Payment Card Industry Data Security Standard.
What is a Card Scheme?
Card schemes are major payment networks that use credit and debit cards to process payments. Its primary function is to manage payments transactions, operations, and clearing. The rules and procedures that govern transactions allow cardholders to use cards with retailers and other service providers. Acquiring Banks and other financial institutions can apply to join the scheme. They then issue credit or debit cards to the scheme’s members and acquire money through transactions. A bank might apply to join a Visa program and issue Visa debit cards or credit cards to its customers.
The two of the largest global brands, Visa and MasterCard, are known as card schemes. They provide debit and credit cards that are universally accepted. Although card schemes are used by millions of people, there is no direct relationship between them and consumers.
What is an Issuing Bank?
An issuing bank, also called the issuer, is a financial institution that issues credit and debit cards on behalf of major card networks such as Visa, MasterCard, and American Express. There are more than a hundred of thousands of issuers who provide credit and debit cards to their customers throughout the world. Because of the risk associated with issuing cards, the issuing bank, not the card networks, accept the liabilities and guarantee payment in case of loss or damage.
The issuing bank will write off any cardholder who is unable to pay their debts. The issuing bank bears the costs of recouping them.
In the transaction process, the issuer is responsible for customer authentication and ensuring that the cardholder has enough funds to cover the transaction.
The issuing bank is also in charge of approving and denying credit card applications, collecting payments from the cardholders, and providing customer support.
Role of Issuing Bank
Online transactions are handled by issuers or banks that act as middlemen between customers and card networks. It is not common to believe that credit card networks such as Visa and Mastercard issue debit or credit cards. In fact, the card is issued by banks and credit unions.
It is essential to be aware that specific card networks, such as American Express and Discover, are their own banks. The issuer makes a contract with the customer and provides a line credit that the customer can use to purchase credit cards and pay back the issuer with interest. The issuing bank contacts the merchant’s bank to transfer the funds to the customer when the customer makes a purchase using their card. After charging fees and other charges, the acquirer will transfer those funds to the merchant’s account. The issuer is responsible for non-payment, but card networks have rules that both issuers and acquirers must share the liability.
If a customer suspects that a charge to their credit card was fraudulent or invalid, they may contact their issuer to initiate the chargeback process. If the customer is found to have a valid dispute, the issuer will send the chargeback to the acquirer. The merchant will then be notified that they can either accept or reject the chargeback. The acquirer will notify merchants who are fighting the chargeback and send them any statements or evidence. The issuer will then decide based on that evidence.
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