The Roles in Card Transactions: Acquirers, Issuers, Networks, and Processors

What is acquirer and issuer in banking finance?

In banking and finance, the terms "acquirer" and "issuer" refer to two key parties involved in card transactions, such as those made with credit or debit cards.

Here's a simple explanation of each:

?? Acquirer (Acquiring Bank)

? An acquirer is a bank or financial institution that processes credit or debit card payments on behalf of a merchant.

? When you swipe your card at a store or enter your card details online, the acquirer is the party that collects the transaction details, verifies them with the card network (like Visa or MasterCard), and then approves or declines the transaction based on the issuer's response.

? If the transaction is approved, the acquirer will then settle the funds, ensuring that the merchant receives payment for the sale, minus any fees for the transaction.

?? Issuer (Issuing Bank)

? An issuer is a bank or financial institution that issues credit or debit cards to consumers.

? When you have a credit or debit card, the issuer is the institution that provided you with that card.

? It is responsible for setting the terms of the card (such as credit limits, fees, and interest rates), managing your account, and paying the merchants on your behalf when you make a purchase.

? The issuer then either deducts the amount from your bank account (in the case of a debit card) or loans you the money to be paid back later (in the case of a credit card).

?? Example: To put it in a simple scenario:

1?? Imagine you're buying a new shirt at a store with your credit card.

2?? The store's bank (the acquirer) processes the transaction and requests authorization from your credit card's bank (the issuer).

3?? Your bank approves the transaction and informs the store's bank.

4?? The store gets paid for the shirt, and you later pay back your bank according to your credit card agreement.

What is a card network?

? The card network, often referred to as the payment network or card association, is the system that connects banks and financial institutions involved in the issuance and acceptance of credit and debit cards.

? These networks facilitate the processing of card transactions, ensuring that information and funds are exchanged accurately and securely between the merchant's bank (the acquirer) and the cardholder's bank (the issuer).

? Major card networks include Visa, MasterCard, American Express, and Discover.

? Each network sets the rules and standards for transactions that occur using their cards, including security standards, transaction fees, and dispute resolution processes.

? When you make a purchase with a credit or debit card, the card network acts as an intermediary that:

1. Authenticates the transaction to make sure the card is valid and has sufficient funds or credit available.
2. Authorizes the transaction, signaling the merchant can proceed with the sale.
3. Settles the transaction, meaning it manages the transfer of funds from the issuer to the acquirer, which then pays the merchant.

The card network plays a crucial role in the electronic payment ecosystem by ensuring that payments are processed smoothly, securely, and efficiently, no matter where in the world the cardholder and the merchant are located.

What is the difference between Card processor and Card Network?

The card network and card processor play crucial roles in facilitating credit and debit card transactions, but they serve different functions in the payment process. Here's a breakdown of the differences:

Card Network

? A card network refers to the companies that provide the infrastructure and rules for processing card payments.

? These networks connect the issuing banks (which provide cards to consumers) and the acquiring banks (which process payments for merchants).

? The most well-known card networks are Visa, MasterCard, American Express, and Discover.

? They are responsible for:

• Establishing the interchange fees (the fees charged for each transaction that are shared between the acquiring and issuing banks).
• Ensuring security and compliance standards are met in the transaction process.
• Providing the authorization, clearing, and settlement services that enable transactions to be completed.

Card Processor

? A card processor is a company that actually processes the transactions on behalf of merchants and sometimes, banks.

? They handle the technical aspects of processing card payments, including:

• Sending transaction details from the merchant to the card network.
• Obtaining authorization from the card network and the issuing bank.
• Ensuring the merchant and issuing bank settle the transaction, with the merchant receiving payment and the issuer debiting the cardholder's account.

? In essence, while the card network provides the infrastructure and rules for payment transactions, the card processor acts as the intermediary that facilitates the technical aspects of these transactions, making sure the information is accurately transmitted between merchants, banks, and card networks.

? It's common for the terms to be used interchangeably in casual conversation, but their roles in the payment ecosystem are distinct, with the card network focusing on the overarching system and standards for card payments, and the card processor handling the day-to-day operations of moving transaction data through the system.