Online transactions involve many players and many connections to ensure that the transactions occurs within a quick 2 – 3 second timeframe. In this Payment 101 we will discuss the banking players in the payment processing ecosystem.
There are two different banks that enable the payment ecosystem to work efficiently.
The Issuing Bank, referred to as Issuer, represents the cardholder making the purchase online. The way to remember what an Issuer bank’s responsibility is that they “issue” a credit card to the consumer. The Issuer then facilities the repayment of transactions charged on the credit card through the card network to the merchant. Issuers can supply cards branded by Visa, MasterCard, American Express or Discover.
Helpful Tip: Large Banks can also act as both an Issuer and an Acquire. For example a merchant can have his business account with Wells Fargo and also accept credit card transactions from consumers using a Wells Fargo credit card.
The Acquirer or often referred to as Merchant Acquirer, represents the merchant. All merchants require a Merchant Bank to be able to accept online credit card transactions, and to receive the funds from the cardholder’s issuing bank into their business account. The Merchant Bank is essentially a Merchant’s business bank. The Merchant Acquirer does bear risk from the credit card process in the form of chargebacks which can be excessive. To reduce the Acquirer’s risk, they will require the merchant to have a reserve. The reserve occurs by the Acquirer retaining a portion of the Merchant’s funds from their daily transactional volume.
Helpful Tip: There is an alternate option for accepting payment without a Acquirer which is to process payments with a wallet provider such as PayPal, Apple Pay, or Google Pay.