Nowadays, more and more goods and services are being bought online with credit cards. The payment system is very complex and sometimes can be very confusing for merchants, so today in this article we will talk about acquiring banks and their role in the payment industry as they perform numerous functions in the world of electronic commerce.
An acquiring bank is a bank or financial institution that processes a merchant’s credit card sales, and credits them to the merchant’s account. It needs a payment processor to provide the necessary software and technical systems to have the possibility to be connected with the card associations like Visa, MasterCard, AmEx, Discover and safely complete the transactions.
What are the advantages of Internet acquiring?
If your online store is not accepting credit cards, there are plenty of reasons why you should consider it:
- Simplicity of payments.
- Increase of your sales volume.
- Elimination of acceptance of bad checks.
- Convenience for customers, ability to make purchases at any time, without leaving their homes.
- Increase of sales volumes due to impulse purchases.
- Full control of all the transactions via your personal cabinet.
- Enhanced security features of all the transactions.
- Cutting time involved in payment processing.
- Increase of your credibility.
What is the scheme of working of Internet acquiring?
There are several steps in the typical transaction process so you can see the role of acquiring bank in it. The customer choose goods or service on the online shop and want to pay for it using a bank card.
An authorization request is sent from the website to the acquiring bank. The acquiring bank forwards the request to the payment system to have an authorization. The payment system forwards the request to the issuing bank.
The issuing bank authorizes (or it can be declined) the transaction and sends the approval to the payment system. The payment system forwards the approval to the acquiring bank.
The acquiring bank forwards it to the online store and the merchant performs the order. The entire process typically takes 2–3 seconds.
What is the main source of risk to the acquiring bank?
Consumers have three options to claim the reversal of funds:
1. A card refund is the return of funds to the consumer, voluntarily initiated by the merchant.
2. A card reversal is where the merchant cancels a transaction after it has been authorized but before settlement occurs.
3. A card chargeback occurs in a dispute between the merchant and the cardholder over the validity of the transaction. The card holder requests the return of funds through the issuing bank for reasons that include that the goods were not received or were faulty, or that the cardholder lacks knowledge of the transaction.
Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a chargeback. Visa and MasterCard levy fines against acquiring banks that retain merchants with high chargeback frequency. That is why it is so important to do everything to decreasy the chargeback ratio.
We hope now the process of Internet acquiring is not as confusing as before. Broadening your payment methods makes your services or goods more readily available to current and potential customers and can bring you a lot of benefits!