Difference between ‘Acquiring Bank’ and ‘Issuing Bank

Every online merchant comes across two financial institutes on a daily basis: Acquiring bank and Issuing bank.

1. Acquiring bank also called merchant bank or acquirer is responsible for maintaining merchant’s bank account. Every merchant is required to sign a contract with the acquiring bank in order to process credit or debit card transactions. To receive payment, acquiring bank passes merchant’s transaction to the applicable issuing bank.

2. Issuing bank, on the other hand, is a financial institute responsible for issuing a credit card to customers on behalf of card networks. Card network plays the decision making role and decides whether their partnered credit card be used. Whereas the issuing bank acts as a middleman between the customer and the card network. Examples for card network are MasterCard, Visa, and American Express.

Additional Terms

• Payment Processor: It is an organization that is under contract with the acquiring bank to process credit card transactions.
• Payment gateway: It is another version of POS (Point-of-sale) terminal, where the card from which payment is made is not physically present. Because of the Card-not-present transaction, the payment gateway is fully responsible for getting transaction authorization and data encryption. In simple words, this service provider passes on transaction information from merchant to the processor.
• Third party service provider: These providers are also used by merchant engaged in card-not-present transactions that includes web hosting, SSL certificate, shopping cart and much more.
• MID: MID stands for Merchant Identification Number and it is a unique code/number used to identify the merchant at the time of processing a transaction and is similar to bank account number.

Things to know

• Generally, issuing bank manages cards on behalf of card network and acquiring bank maintains merchant’s bank account.
• However, there are card networks that have their own financial institutes and are issuing the credit card to customers as well. Discover and American Express is the examples of such card networks.
• There are a few financial institutes that act like both; acquiring bank as well as issuing bank. These banks operate on behalf of both: merchant and customer. For Example Bank of America and Citi Bank

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