Answer to Question 1
When a cardholder successfully contests a charge, the acquiring bank must retrieve the money it placed in the merchant account in a process called a chargeback. To ensure that sufficient funds are available to cover chargebacks, an acquiring bank might require a company to maintain funds on deposit in the merchant account.
For example, a new or risky business that plans to make 100,000 in sales each month might be required to keep 50,000 or more on deposit in its merchant account.
Answer to Question 2
An acquiring bank is a bank that does business with sellers (both Internet and non-Internet) that want to accept payment cards. To process payment cards for Internet transactions, a business must set up a merchant account with an acquiring bank. One type of merchant account is similar to a regular business checking account; the merchants acquiring bank collects credit card receipts on behalf of the merchant from the payment card-issuing bank and credits their value, net of processing fees, to the merchants account. More commonly, a merchant account is set up to operate as a credit line rather than as a checking account; that is, the acquiring bank makes what is essentially a non-interest-bearing loan to the merchant in the amount of the net credit card receipts each day. As the acquiring bank collects the proceeds of the transactions from the issuing bank, the acquiring bank reduces the balance of the non-interest-bearing loan to the merchant.
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