When setting up a business for online or in-person transactions, merchants must set up a bank account into which the payments will be deposited. These bank accounts are merchant accounts and are managed by a vendor called the Acquiring Bank. In the guide below, many of the services and functions of an acquiring bank will explained for merchants.
Acquiring Bank Table of Contents
An acquiring bank, also known as an acquirer, is a third party that offers a merchant account to a business for the purpose of accepting payments. It is often a bank or other financial institution that is a licensed member of a card issuer such as Visa or MasterCard. This allows the acquirer to offer payment services to their clients.
Without a merchant account and an acquiring bank, merchants are unable to accept payments for their goods and services. However, an acquirer’s role is much larger than it may seem.
Functions of the Acquiring Bank
The acquirer has a variety of roles in their relationship with each of their merchants. Maintaining their clients’ bank accounts is a multi-faceted responsibility and can include all the following obligations.
Compliance
Every acquirer must comply with the regulations set forth by the card networks. Each card network has a different set of policies, but they all revolve around data protection. Acquirers have access to a significant amount of customer data that could be misused if compromised. Adhering to the card networks’ policies adds a layer of protection to ensure the safety of this data.
Data Security
Any vendor who has access to consumer data has the responsibility of protecting that data through cybersecurity. The acquirer must use PCI compliant systems and partners to process the transaction data that is entrusted to them. PCI compliance includes a variety of protocols and applications that help protect consumers from would-be cybercriminals. As mentioned above, data security is of the utmost importance in the financial sector.
Authorization
When a transaction is initiated, the acquirer plays the role of a broker between the acquiring bank and the issuing bank. The acquiring bank is the acquirer itself, and the issuing bank is that of the card that is being used to pay for the transaction. During the authorization phase of the transaction, the acquirer asks the issuing bank if the card is valid. It also asks if there are enough funds in the associated account to pay the full amount of the transaction. This is a digital process.
Authentication
This is an additional step that can be used for security purposes but is not a requirement. It entails requesting additional information from the issuing bank to verify the card holder’s identity. It helps protect consumers and merchants from fraudulent transactions. This is done through a security protocol called 3 Domain Structure, 3DS, or 3D Secure. This protocol was developed and initiated by Visa and MasterCard.
Acquirers and Payment Security
We’ve discussed quite a bit about data security so far, but let’s dig a little deeper. The acquirer takes on the risk and responsibility for the safety of all consumer data that comes into their possession. A data breach of any kind could pose significant risks and hardships to the consumers and merchants affected by the breach. Here are some of the key ways in which acquirers protect consumer data:
PCI Compliance – Setting up systems and protocols to be 100% compliant with the Payment Card Industry Data Security Standard. This is a standard set of protocols that are required by the card networks for any institution that has access to such data.
Fraud Detection Software – Installing software that can detect potential fraud before it happens, such as multiple transactions being made by the same card in succession. Many fraud detection software companies also offer fraud prevention services, some of which are listed below.
2-Step Authentication Protocols – Sending a verification code to an email or phone number associated with the card that must be entered into the payment gateway for the transaction to be completed. This helps ensure the identity of the card holder.
Address Verification – Asking the cardholder for a zip code or other address information associated with the card, to ensure the person placing the transaction is the person who actually owns the card.
Geolocation Services – This function can allow the acquirer to access the location of the IP address from which the transaction is being made. This can assist in fraud detection. For example, this function can detect transactions being initiated from countries that are considered high risk.
Blacklisting – Acquirers can be proactive against fraudsters by enacting blacklisting in their protocols. To do this, the acquirer can exclude certain IP addresses, specific credit card details, physical location, and more.
Biometrics – Using biometric verification is a more secure way to verify the card holder’s identity. This is accomplished by requiring a thumbprint or face recognition to unlock the device being used. It can also be implemented to complete a transaction on the specific application where the payment gateway is.
There are many more options for payment security that acquirers can implement, but these are the most popular options right now. Cybersecurity is an ever-evolving process, and acquirers must stay abreast of new techniques and new threats.
Do Acquirers Process Transactions?
Acquirers sometimes offer card processing services. However, not all of them do. When looking for an acquiring bank to get a merchant account, be sure to ask that question. If you want a one-stop-shop for processing and merchant account services, you’ll need to find the right partner.
During the process of finding the right merchant account, take all the responsibilities listed above into consideration. It’s important to find an acquirer who will protect your business to the best to their abilities. Finding the right merchant account provider is critical!
