Acquiring bank vs. issuing bank: merchant guide to payment flow

What is an acquiring bank?

An acquiring bank provides the infrastructure merchants need to accept credit and debit card payments. It establishes and manages the merchant account, transmits transaction details to the card networks (Visa, Mastercard, American Express, etc.) and issuing banks for authorization and ensures funds reach your account after settlement.

Key responsibilities of an acquiring bank

• Facilitates card acceptance: The acquirer sets up your merchant account, letting you process card transactions through payment gateways or processors.
• Routes transactions: When a customer places an order, your acquirer receives that data and routes the transaction through the appropriate card network to the issuing bank for review and authorization.
• Manages settlement and payouts: After bank authorization and merchant approval, the acquirer deposits the funds into your merchant account. Depending on the acquirer or payment service provider (PSP), settlement can be net (fees deducted before payout) or gross (fees invoiced separately). Interchange — a fee set by the card networks and paid by the acquirer to the issuer — is typically passed through to the merchant as part of the total cost of acceptance.
• Coordinates disputes and chargebacks: When a cardholder disputes a charge, the issuer gives a provisional credit and sends the chargeback to the acquirer, who notifies you (the merchant). You can either accept the chargeback or submit evidence to fight it. The issuer reviews the evidence and makes the final decision, and the funds are adjusted accordingly.
• Maintains network and security compliance: The acquirer ensures transactions adhere to payment security standards like PCI DSS.

What is an issuing bank?

The issuing bank, or issuer, lives on the customer’s side of the transaction. This is the bank that issues the customer’s credit or debit card, and decides if a transaction should be authorized or declined. If a customer disputes a charge, the issuer initiates the chargeback process and communicates through the card networks and acquirers to resolve the claim.

Key responsibilities of an issuing bank

• Issues and manages cards: The issuer provides payment cards to consumers and oversees their credit or deposit accounts.
• Authorizes or declines transactions: When an authorization request reaches the issuer, it runs basic checks on available funds, account details, account status and fraud risk indicators. If everything looks normal, the transaction is authorized and routed back to the merchant for approval. If not, the issuer blocks the transaction immediately.
• Manages fraud and credit risk: The issuing bank assumes the risk of extending credit and covers unauthorized transactions on legitimate cards. It’s important to note that after merchant approval, liability for fraudulent orders shifts from the issuer to the merchant.
• Handles chargebacks: If a cardholder disputes a transaction, the issuer initiates the process and works through the card network to communicate with the acquiring bank.

Acquiring bank vs. issuing bank: What’s the difference? 

How acquirers and issuers impact the payment process

Both acquirers and issuers are necessary for a smooth, secure payment process during ecommerce transactions. Knowing how they exchange information can help you identify where gaps occur and why certain transactions move forward while others don’t.

Routing and submitting payment requests

The acquiring bank acts as a go-between between you (the merchant), the card issuer and the payment processors involved. When a customer clicks ‘Pay,’ your payment gateway captures all relevant transaction details and sends them to the acquiring bank. The acquiring bank then determines the most efficient route for submitting the payment request, considering things like the customer’s region, card type, currency and transaction value.

For example, if a shopper in Canada makes a purchase from a U.S. retailer, the acquiring bank routes the payment through the appropriate network so it reaches the correct issuing bank for authorization.

Evaluating and authorizing transactions

Once the payment request reaches the acquiring bank, it’s transmitted through the card network to the issuing bank for evaluation. The issuer then reviews the cardholder’s account and checks that the card:

• Isn’t expired or frozen
• Hasn’t been reported lost or stolen
• Has sufficient funds or credit available

It also screens for basic red flags that signal abuse, like transactions originating from suspicious locations or those that trigger any of the bank’s other built-in fraud filters.

If the issuer authorizes the payment, that approval travels back through the card network and the acquirer, allowing the transaction to move forward to the merchant for approval. But if the data passed along is incomplete or inconsistent, the issuer will usually decline the transaction.

Consider a long-time customer who usually shops online from California but suddenly makes a purchase from Canada. The order details are accurate, but the mismatch between location, billing ZIP code and device history raises red flags for the issuing bank. Even though the shopper is legitimate, the issuer errs on the side of caution and declines the transaction.

Scenarios like this stem from a deeper problem: a lack of shared visibility between banks. Without the right context from access to key merchant and customer data, even legitimate orders can appear suspicious.

The visibility challenge between acquiring banks vs. issuing banks

Because acquiring banks and issuing banks serve different parties (merchant vs. customer) and focus on opposite sides of a transaction, their visibility into the full payment flow is limited. Acquirers manage merchant accounts and see the transaction from the merchant’s perspective, but they don’t have access to the cardholder’s account details or the issuer’s risk evaluation logic. Issuers, on the other hand, evaluate payments using cardholder data and fraud signals but lack visibility into merchant-side activity or how transactions are routed through the acquirer.

This disconnect creates communication and data-sharing challenges — especially when it comes to resolving disputes, investigating fraud and making accurate risk assessments. Both sides depend on the card networks to relay information, but that limited visibility often leaves merchants reacting to outcomes they can’t fully explain.

On the issuer side, a transaction may look suspicious without the broader merchant context that would confirm it’s authentic. On the acquirer side, merchants often receive only limited or generic decline codes, leaving them in the dark about what triggered the rejection or how to prevent it next time. Together, those blind spots lead to unnecessary declines and lower authorization rates. But, on the bright side, there are things you can do to provide better visibility.

How to bridge the visibility gap and boost authorization rates

Better data and cleaner traffic can close much of the gap between merchants and issuers. If you leverage a tool that enriches and controls the information sent forward, like Signifyd’s Authorization Rate Optimization (ARO) solution, for example, you give issuers richer context that lets them more accurately assess risk and lift authorization rates by up to 3%.

Move fraud review ahead of bank authorization

One of the best ways to bridge the visibility gap is to get ahead of fraudulent transactions with machine learning fraud prevention, by screening them out before they’re passed to the bank. Pre-authorization with ARO lets you filter out obvious fraud, avoid authorization fees on transactions that would never pass checks and keep cleaner, more trustworthy traffic flowing to issuers.

This approach creates a “halo effect” across the payment ecosystem. As issuers see a steady flow of cleaner, lower-risk transactions, they gain confidence in the signals coming from your business. Over time, that confidence leads to smoother approvals and more relaxed controls, which reduces the amount of chargebacks and authorization costs you experience.

Enrich authorization requests with stronger data

The high quality of the data that merchants send to the issuer can dramatically influence authorization rates and ultimately transaction success rates. Transaction details like billing and shipping address match, device ID, behavioral patterns and prior order history provide context that builds confidence.

By delivering richer, cleaner data with ARO, you can help bridge the disconnect between merchant and issuers. With a more complete picture of each transaction, issuers can more easily distinguish genuine orders from fraud attempts, driving stronger authorization rates and lower false declines.

Build a virtuous cycle of confidence and conversion with Signifyd

When banks consistently see trustworthy, low-risk orders from a particular merchant, they begin to treat that traffic as inherently safer. Over time, this builds a virtuous cycle of confidence and conversion — where merchants are rewarded with higher authorization rates and more successful, genuine transactions.

You can strengthen that cycle by improving what banks see. And Signifyd’s Authorization Rate Optimization solution makes it simple to do exactly that by:

• Stopping fraud before it reaches the bank
• Enriching legitimate transactions with better data so banks can make more confident decisions
• Continuously improving authorization outcomes through feedback loops

Photo by Getty Images

Ready to see the difference cleaner data and smarter authorizations can make? Let’s talk.