Understanding Payment Processing: The Role of Acquiring Banks

The Hidden Engine Behind Every Card Transaction

When you tap, swipe, or enter your card details online, a complex financial network moves in the background to ensure the payment is processed quickly and securely. Within this system lies the acquiring bank, an essential player that businesses need to accept card payments.

But how does this process work, and why is it crucial for merchants to understand? Let’s break it down!

What is an Acquiring Bank?

An acquiring bank (or acquirer) is a financial institution that processes transactions on behalf of a merchant. Simply put, when a business wants to accept credit card payments, it partners with an acquirer that provides the technology and financial infrastructure to facilitate those payments.

In Canada, acquirers play an even larger role, as they often provide the front-end network, the payment rails that allow transactions to be accepted.

Why Does This Matter for Businesses?

• Without an acquiring bank, merchants cannot process card payments.
• Acquirers handle risk management, ensuring businesses comply with regulations and. fraud prevention measures.
• The right acquirer can reduce costs, offer better settlement times, and improve the overall payment experience.
• Certain technology systems and solutions are only compatible with specific acquirers and front-end systems. Ensuring compatibility between your technology system and the acquirer is crucial for smooth operations, avoiding integration issues, and optimizing performance.

Why Acquirers Underwrite Businesses

Before approving a merchant, acquirers assess financial risk, a process known as underwriting. The biggest concern? Chargebacks.

A chargeback happens when a customer disputes a transaction and their issuing bank reverses the payment. If a merchant can’t cover chargebacks, the acquiring bank absorbs the loss, which is why some businesses face more scrutiny than others.

High-risk industries, such as travel, subscription services, and adult entertainment, often have stricter underwriting requirements because of increased chargeback exposure.

What businesses can do:

⮕ Maintain strong fraud prevention measures

⮕ Communicate refund policies

⮕ Ensure transparent transactions to reduce chargeback risks

How Does Funding Work?

Once a transaction is approved, the acquiring bank facilitates the movement of funds:

Step 1: The acquirer moves money from the customer’s issuing bank to the merchant’s account.

Step 2: The acquirer deducts processing fees, which include:

⮕ Interchange Fees (paid to the card-issuing bank)

⮕ Network Fees (Visa, Mastercard, etc.)

⮕ Acquirer Margin (for facilitating the transaction)

Step 3: The merchant receives the funds, typically within 1-2 business days, depending on settlement terms.

Payment Solutions with Kubera Payments

At Kubera Payments, we help businesses across North America move millions of dollars daily, whether in-store, online, or on mobile.

Our team of payment experts is here to guide you through the complexities of payment processing, ensuring your transactions are secure, reliable, and PCI-compliant. We have strong relationships with a wide network of acquirers and can help you find the right front-end and technology solutions to work together.

Get expert advice on optimizing your payments, let’s talk!

Contact our team today at sales@kuberapayments.com or 604-484-9278.

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