Merchant Bank (Acquiring Bank)

A merchant bank, commonly referred to as an acquiring bank or acquirer, is a financial institution that enters into agreements with merchants to process credit and debit card transactions. This bank acts as an intermediary between merchants and the card networks (like Visa, MasterCard) and card-issuing banks, facilitating the authorization, settlement, and funding of card transactions.

The role of the acquiring bank is crucial in the payment ecosystem as it provides merchants with the necessary infrastructure and services to accept card payments. This includes providing or arranging for payment terminals and other hardware, securing internet transactions, and managing the financial details of each card transaction. After a customer makes a card purchase, the acquiring bank receives the transaction information, gets authorization from the card issuer through the card network, and ultimately credits the merchant's account with the transaction amount, minus applicable fees.

The relationship between a merchant and its acquiring bank is formalized through a merchant agreement, which outlines the responsibilities of each party, the fee structure, and other terms and conditions. Acquiring banks assume the risk of the transactions processed, which includes dealing with chargebacks, where a transaction is disputed by the cardholder and funds are returned to them.

In summary, acquiring banks are vital for merchants to efficiently process and receive funds from card-based transactions, supporting the overall fluidity and security of electronic payments in the commercial sector.