If you have a credit or debit card , you’re already pretty familiar with the role of the cardholder. A cardholder is essentially someone who obtains a bankcard from a card issuing bank which they then use and present to merchants as payment for goods or services.

A merchant in its most basic definition is any business engaged in the sale of goods or services. A merchant in the case of card payments however is any business that maintains a merchant account that enables them to accept credit or debit cards, using a Credit Card Machine, as payment from customers (cardholders) for goods or services provided.

An acquiring bank is a registered member of the card associations Visa and/or MasterCard. An acquiring bank is often referred to as a merchant bank because they contract with merchants to create and maintain accounts that allow the business to accept credit and debit cards. Acquiring banks provide merchants with equipment and software to accept cards, promotional materials, customer service and other necessary aspects involved in card acceptance. The acquiring bank also deposits funds from credit card sales into a merchant’s account.

Interestingly enough, many merchants don’t recognize their acquiring bank as the primary provider of their merchant account. Acquiring banks are playing an increasingly hands-off role as the bankcard system evolves. Acquiring banks often enlist the help of third-party independent sales organizations (ISO) and membership service providers (MSP) to conduct and monitor the day-to-day activities of their merchant accounts.

An issuing bank issues credit cards to consumers and is also a member of the card associations Visa and MasterCard. Issuing banks pay acquiring banks for purchases that their cardholders make. It is then the cardholder’s responsibility to repay their issuing bank under the terms of their credit card agreement.

Visa and MasterCard aren’t banks and they don’t issue credit cards or merchant accounts. Instead, they act as a custodian and clearing house for their respective card brand. They also function as the governing body of a community of financial institutions, ISOs and MSPs that work together in association to support credit card processing and electronic payments. Hence the name, “card associations.”