Issuer vs AcquirerThe Key Functions & Differences Between Acquiring & Issuing Banks

Issuer vs Acquirer: What's the Difference between These Types of Banks?

A conventional payment card transaction will involve two key players: the issuing bank, representing the cardholder, and the acquiring bank, which represents the merchant. That’s not to say there’s a clear-cut between the two. In some cases, one bank might play both roles for parties in different transactions.

So, how do these types of financial institutions differ? What are their specific roles in the transaction process? And, when we say “issuer vs acquirer,” is that relationship really an antagonistic one, or more collaborative? Let’s dig in. 

What is an Issuer?

Issuing banks work for the customer. The card networks themselves are not heavily involved in individual transactions. They simply provide the framework for consistent, regulated usage, plus rules and standards for payments conducted on their network.

Issuers take on the inherent risks of issuing credit to customers. Issuing banks must accept, restrict, or deny card applications based on the creditworthiness of the applicant. After approving a customer, the issuer’s role includes assessing the cardholder’s account and ensuring the customer has enough resources to cover the cost of each transaction.

The issuing bank essentially provides unsecured, short-term loans to cardholders. In return, they collect monthly interest fees as long as the debt remains unpaid. If the customer completely defaults, however, the bank could be liable for all unpaid debts. In other words, if the cardholder can’t pay the bill, it becomes the bank’s problem.

Learn more about issuing banks

What is an Acquirer?

Acquiring banks provide merchant accounts to businesses and are authorized to process credit or debit card payments on the merchant’s behalf. They ensure transactions are routed to the card network appropriately. Once the issuer releases the transaction amount from the cardholder’s account, the acquiring bank accepts the payment and makes sure the money gets to the merchant’s account.

In some instances, acquirers process transactions themselves. More typically, they will work in tandem with third-party payment processors. They then serve as a middleman between the merchant, the processor, and the card network.

Like issuers, acquirers assume some of the financial risk associated with payments. If a data breach occurs somewhere in the transaction flow, for example, the acquiring bank could be liable for the compromised transaction. To mitigate this risk, acquiring banks must stick to strict PCI-DSS mandates.

Also, they could be liable for any outstanding refund or chargebacks if a business fails. Thus, acquirers must focus on the bankruptcy potential of the merchants they represent. Any business applying for a merchant account is carefully vetted. Potential gains are weighed against possible future losses. The account will not be granted if the risk factor is deemed unacceptable. The merchant might be forced to use the services of a “high-risk” acquirer at a substantial additional cost or to maintain an account reserve to offset the costs of chargebacks.

Learn more about acquiring banks

Issuer vs Acquirer: Key Differences

The main differences between the two banks are the party they serve, and the role they play in a transaction. One bank operates on the cardholder’s side of the transaction, and the other mainly focuses on merchants who serve them. 

Here’s a quick breakdown of some of the key differences the define the issuer vs acquirer dynamic:

These differences underline the distinct, yet complementary roles that an issuer vs acquirer plays in the payments ecosystem. These positions are vital to ensure that payment transactions can be conducted efficiently.

Issuer vs Acquirer: The Role of Each in the Transaction Process

As mentioned above, the issuing bank's role in a card transaction is to authorize or decline the transaction based on the cardholder's account status. On the other hand, the acquiring bank is responsible for capturing the transaction and collecting the funds from the issuer to settle with the merchant.

This table lays out the issuer vs acquirer roles, point by point:

The issuing bank:	The acquiring bank:
Provides payment cards to customers	Maintains a business’ merchant bank account
Approves or denies credit card applications	Processes payments
Authorizes or denies a cardholders’ ability to pay for a particular transaction	Passes along consumer transactions, allowing merchant to receive payments
Releases the transaction amount to acquiring banks once approved	May provide a line of credit to offset unexpected processing costs, such as chargebacks
Allows customers to make payments through card networks	Allows merchants to accept payments through card networks

Now that we have a better understanding of how these two banks operate and whom they serve, it’s time to answer the next important question…

Are Issuer & Acquirers the Same as Card Networks?

No, issuers and acquirers are not the same as credit card networks. They are distinct entities within the credit card processing ecosystem.

Card networks are companies like Visa, Mastercard, American Express, and Discover. They act as intermediaries between issuers and acquirers, maintaining communication infrastructure and facilitating transaction approval and settlement. Credit card networks set the rules for card transactions, manage interchange fees, and ensure that the payment system is secure and efficient. They do not issue cards to consumers or directly handle merchant accounts.

Essentially, credit card networks are the link between issuers and cardholders on one end of a transaction, and acquirers and merchants on the other. They are the final authority regarding funds being routed from cardholders to merchants. 

That’s not to say a brand can’t occupy multiple roles at the same time, though. Visa and Mastercard are not banks; they are just transaction service providers and administrators. However, American Express and Discover serve as both the credit card network and the issuing bank for their cardholders. They can approve applications and keep track of account balances. They can authorize or deny funds for a given transaction and render judgments in customer dispute claims.

Preserving Merchant Relationships With Acquirers

Acquirers and issuers each influence the chargeback process in different ways. For example, when a cardholder disputes a purchase, the issuing bank has the right to undo the transaction, take funds directly from the merchant’s acquirer, and return them to the customer. Acquirers, for their part, can facilitate the process of contesting fraudulent disputes.

Merchants are better off having a good relationship with these financial institutions before customer disputes happen. There are numerous ways one can help build and maintain good relationships.

As we noted earlier, acquirers take a risk when they offer an account to a merchant. If the business fails, they could potentially lose a lot of money. They’re investing in the merchant, in a sense, and one of the ways they protect that investment is by charging an ongoing fee for their services.

Even so, if a business begins showing signs of additional risk — such as an increase in chargebacks — the acquirer could raise their fees or possibly even close the account altogether. To maintain a relationship with an acquirer, it’s in the merchant’s best interest to do whatever they can to decrease chargeback risk factors. To that end, merchants should consider downloading our free guide, which offers dozens of actionable tips for reducing chargebacks.

Working with Issuers & Acquirers to Avoid Chargebacks

We talked about the issuer vs acquirer relationship as if they’re opposing forces. However, managing chargebacks is really more of a collaborative process.

One’s relationship with an acquiring bank will likely be their primary focus. Still, merchants can’t lose sight of the fact that issuing banks are the ones who actually decide customer disputes. Actions such as responding quickly to inquiries and maintaining a professional demeanor in all correspondence can positively impact their reputation and relationships.

It may seem counterintuitive, but one of the best ways to build a good reputation with banks is to contest all invalid chargebacks. Failing to challenge a fraudulent dispute can be interpreted as an admission of guilt, making the merchant seem irresponsible. Responding to invalid chargebacks — with strong supporting evidence — helps show issuers that the problem doesn’t lie with the merchant.

Statistically speaking, the best way to prevent and fight chargebacks is to seek professional help. The right chargeback management company will bring experience and expertise. They will also have ongoing relationships with issuers, acquirers, processors, card networks, and more. They’ll be in a better position to challenge chargebacks than the average merchant.