Difference Between Acquiring Bank Vs Issuing Bank

Difference Between Acquiring Bank Vs Issuing Bank
By max May 2, 2023

Credit and debit card transactions might look simple in the eyes of a paying customer or an employee at a cash register. But there’s a lot that goes into the backend to successfully complete the transaction. The two major players that streamline card transactions are—an acquiring bank and the issuing bank. Of course, the same bank is capable of executing both actions, but when it comes to card transactions, both have different roles.

If your business accepts card payments, it’s important that you are familiar with these terms, the purpose of these banks, and how they process card transactions. This will help you take steps to lower the risk of chargebacks and payment issues due to other reasons. If any problem occurs in card transactions, you will know who to approach. Let’s take a look and understand the difference between acquiring bank vs issuing bank.

What is an Acquiring Bank?

The acquirer or an acquiring bank represents the merchant. They process all payments on behalf of the merchant and maintain their business account. Businesses get their merchant account from an acquiring bank.

The term acquirer may refer to the payment processor that conducts the actual transaction or the bank that maintains the business’ merchant account and works with a payment processing company to process card transactions. When a shopper buys something from a retail store and pays through credit or debit cards, the acquiring bank sends a request to the cardholder’s bank to authorize the transaction. That’s the issuing bank.

The communication takes place over credit card networks. In addition to the normal payment processing, an acquiring bank handles chargebacks, return and refund requests, and other payment issues involving cards. The bank, then, transfers the merchant’s collection after deducting refunds, chargeback fees, maintenance fees, and other expenses.

What is an Issuing Bank?

An issuing bank issues credit and debit cards. They provide customers with popular cards that work within the country and globally. If you need a new card, you can visit Capital One and explore all your options. They are affiliated with different credit card companies. Based on your goals, you can get a Visa, MasterCard, American Express, Discover, and more.

Whatever you choose, Capital One will be the issuing bank here. The card company can also be the issuing bank. For instance, Discover and American Express are two of the major card companies and are also the issuing banks of these credit cards.

Difference Between Acquiring Bank Vs Issuing Bank

Issuing banks are the middlemen that connect customers with card networks. The issuing company earns from the interest that their customer pays on card payments. For credit cards, customers are supposed to pay a fixed percentage of interest after the 0% APR introductory period ends.

When a merchant’s acquiring bank initiates a request for the transaction, the issuing bank looks into it, verifies the details, and pays the requested amount to the merchant on the customer’s behalf after deducting the fees or any charges.

Now that you know what acquiring and issuing banks are supposed to do, let’s take a look at the key differences between the two.

Acquiring Bank Vs Issuing Bank

As mentioned earlier, an acquiring bank can be the issuing bank for a different transaction. Usually, banks can play the role of an acquirer and an issuer for different customers. It can hold a merchant’s account while issuing credit/debit cards to its customers. Both are key players when it comes to debit or credit card transactions.

So, how do they differ? Let’s break down their roles and responsibilities to understand their function in card transactions.


Issuing Bank Acquiring Bank
Represents cardholders Represents merchants
Partners with credit card companies to issue a credit/debit card to a customer. Processes payments on the merchant’s behalf

These descriptions define what issuing and acquiring banks are, but they are not complete. There’s more to these banks and their roles in ensuring that card transactions are processed smoothly. Let’s learn more about these two banks, their roles, and their risks.

Card Transaction Process: Acquiring Bank Vs Issuing Bank

By now, you must be familiar with the terms acquirer, issuer, merchant, cardholder, and card network. Let’s see the role each party plays in the card transaction.

Card Transaction Process - Acquiring Bank Vs Issuing Bank

Authorization Request

The process starts with the cardholder making payments through their credit/debit cards either online or at the point-of-sale system at the retail store. Once the transaction is initiated, the POS system reads the card details and sends the encrypted data to the acquiring bank. The whole communication takes place through a secure credit card network.


The acquiring bank transmits this information to the issuing bank through the same channel to get approval for the card transaction. Once they receive the details, they will either approve or decline the request. Issuers decline a transaction request when the cardholder’s account doesn’t have enough funds to process the requested transaction or the bank detects something suspicious in the transaction. The merchant’s acquiring bank gets a pop-up message about the approval/declined transaction.


Once the request has been approved, the merchant thanks the customer for doing business with them, but the transaction is still not complete. To settle the transaction, the issuing bank has to pay the balance to the acquiring bank on the customer’s behalf. Once that is done, the transaction is processed successfully and marked as settled.

Note: The transaction marked settled can be reversed if the cardholder requests a refund.


If a customer identifies the transaction as unauthorized, they can file a chargeback. The chargebacks can also be filed if the customer is unsatisfied with the product or services delivered by the merchant. If they believe they have received the flawed product or the merchant has failed to deliver what they promised, they can file a chargeback.

In such a case, the issuing bank will review the chargeback request and inform the merchant of the same. The merchant can either accept the chargeback or dispute it. If the merchant accepts it, the transaction is reversed, and the amount that was debited from the customer’s account is credited back. If the merchant fights back, they will provide the required evidence to the issuing bank. The bank reviews the evidence and determines whether to reverse the chargeback or not. The case is then forwarded to the credit card network.

The biggest concern for the merchant here is the constant response expected from them. The merchant sends a rebuttal letter with proper documentation supporting their claim. If the issuing bank declined the request, but the merchant believes their claim is valid, they can reach out to the card network. The party that loses the arbitration case will be held responsible for paying a high fee with the sales amount in question.

Issuing Bank Risks

A card network doesn’t conduct each transaction individually. The issuing bank verifies each transaction and processes them on its behalf. The biggest responsibility of an issuing bank is to scan the applicant’s background and evaluate their credibility before issuing them a credit card.

Once they have issued a card to the customer, they need to monitor the balance in the account and transactions processed from the customer’s end to ensure that they have sufficient funds and a good credit report. The issuing banks generate income from interest. They give unsecured loans to the borrowers and charge them a fixed interest rate until the dues are paid in full.

The issuing bank bears the risk of default payments. There’s a chance a customer is unable to pay their debt or the credit card bills and defaults completely on the payment. The issuing bank will be responsible for such issues.

Acquiring Bank Risks

The acquiring bank is authorized to open merchant accounts for businesses and process credit/debit card transactions on the merchant’s behalf. In a credit card transaction, the acquiring bank’s responsibility is to receive the payment sent by the issuing bank from the cardholder’s account and then transfer it to the merchant’s account after deducting any fee if applicable. The acquiring bank can be the processor or act as an intermediary between the processor, merchant, and the card network.

The acquirer is also exposed to risk. The biggest risk is a security breach. Usually, the data transferred between the acquiring bank and the card network is encrypted. But if it gets leaked, the acquiring bank is held responsible for the data breach. That’s why following PCI-DSS compliance is a must to avoid the data breach risk.

In addition, the acquiring banks bear the liability of unpaid chargebacks and refunds if the business is unable to pay. They also need to evaluate the merchant’s risk factor of defaulting before they accept their merchant account application. The acquiring bank won’t open a merchant account if the individual applying for it or the business they are running is deemed high-risk.

Bottom Line

The hundreds of thousands of transactions conducted through credit/debit cards are managed by acquiring and issuing banks. These parties work in tandem to route the transaction to the card network and ensure efficient and accurate management of card payments.