What Is an Associate Bank?

An associate bank is a bank that is affiliated, usually through membership, in a regional or national organization such as a clearing house, an electronic payments network, or a bank card network, such as Visa or MasterCard. There are usually different classes of membership in regional and national associations, which correlate with shares owned or fees paid.

The term "associate bank" is also used to describe banks that accommodate each other's customers across geographic or national lines when each bank's geographic reach is limited. For example, a small state bank in the United States may have an associate relationship with a bank in London, in order to accommodate a customer traveling there.

Key Takeaways

  • An associate bank is a bank that is affiliated with a payments network, such as a credit card or automated clearing house, for the purpose of more efficient customer transactions.
  • Many banks who issue branded credit cards become associate banks in clearing networks that process and settle all payments.
  • Regional banks may also form alliances with larger banks to facilitate services in a similar type of association.

Understanding Clearing Houses

Clearing houses are banking associations used to facilitate the clearing of checks and other payments, including payments for securities and corporate payments. In the U.S., major clearing houses include the Automated Clearing House (ACH), which processes most debit and credit transactions, such as payroll, vendor payment, and direct deposits. ACH also processes most of the direct debit transfers used by consumers to pay their bills. Point-of-purchase check conversion is also handled through ACH. Most banking transactions in the United States are handled by ACH.

Other clearing houses in the United States include the Clearing House Interbank Payment System, which is used for large transfers, and Fedwire, which is operated by the Federal Reserve Bank. The Electronic Payments Network is a private sector member of the ACH operated by the Clearing House Payments Co.

Bank Card Networks

Most banks are associated with bank card networks that allow them to offer debit and credit card services to their customers. Many bank debit cards operate on the Visa or MasterCard bank card network, the two largest in the U.S. Banks in other countries may be associated with different bank card networks, although the largest bank card networks do allow customers to use debit and credit cards at ATMs and point-of-sale terminals around the world.

Banking Associations

Many banks belong to regional or national bank associations that allow them to protect their interests through lobbying, perform community outreach and consumer education, establish and maintain industry standards and best practices, offer professional development to employees at member institutions, and distribute financial products and services.

Banking associations are regarded as trade associations. The largest banking association in the U.S. is the American Bankers Association; other banking associations include the National Bankers Association, the Independent Community Bankers of America, and the Consumer Bankers Association.