What is an issuer?

An Issuer also known as Issuing Bank, is a financial institution or bank that issues payment cards to individuals or businesses. The issuer provides cardholders with a way to access funds and make purchases. Issuers manage cardholder accounts, set credit limits, and ensure transaction security.

When a cardholder initiates a transaction, the issuer authorizes and facilitates the funds transfer from the cardholder’s account to the merchant. Issuers use security measures, such as fraud detection and card activation processes to protect cardholder accounts.
Issuers often work with acquiring banks and card networks to secure electronic payment systems and provide cardholders with secure financial tools.

What services do issuing banks offer?

Services include:

• Credit card activation and renewal
• Credit card rewards programs like cash back on purchases
• Credit limit review when customers apply for an increase
• Data security measures
• Fraud protection and recovery services
• Payment dashboards so customers can view their accounts on websites and apps

Issuer and payroll platforms

Some robust payment providers maintain money transfer licenses & use global issuing banks such as J.P. Morgan and Citibank accounts to enable infrastructure—such as virtual IBAN accounts—and payment rails. This enables the payment provider to have a virtual IBAN account to ensure accuracy, compliance and speed for cross-border transfers.
Virtual IBAN accounts enable businesses to easily pay vendors, pay contractors, and pay employees from anywhere in the world.

What’s the role of an issuing bank in payment processing?

The issuing bank connects the customer with the payment processing system to enable transactions. When the customer scans their card at a register or makes an online purchase on a website, the acquiring bank initiates the transaction through the payment processor.

The payment processor then connects the business’s bank with the issuing bank. It will either approve or decline the purchase depending on factors such as the customer’s funds availability or credit limit.

If approved, the issuing bank sends the transaction amount to the acquiring bank through the payment processor. The issuing bank charges a fee for each transaction (a percentage of the total to cover costs if the customer doesn’t pay their credit card bill.

If a transaction is declined, the acquiring bank receives a message from the issuing bank with the reason for the denial. The issuing bank resolves complaints for the customer by reaching out to the acquiring bank for more information. If the charge is fraudulent, the issuing bank refunds the customer’s money and the business pays a chargeback fee.

Difference between an issuing bank and an acquiring bank

The merchant’s bank is usually the acquiring bank and the customer’s bank is the issuing bank. The acquiring bank receives payment for the purchase and the issuing bank sends the payment. Many banks provide acquiring and issuing services.

Does a merchant need an issuing bank?

Small businesses don’t need an issuing bank and can enrol with an acquiring bank to accept and process payments as a merchants. Issuing banks cover the customer’s part of the purchase. Enterprises will need an issuing bank.

The most common types of issuing banks

There are various types of issuing banks. The most common types include:

1. Commercial banks: Traditional banks that provide a range of financial services, including credit and debit card issuance.
2. Credit unions: Not-for-profit financial institutions owned by their members and provide credit and debit card issuance, among other services.
3. Retailers: Large retailers issue their credit cards to customers used exclusively at their stores or partner stores.
4. Private label issuers: Create and manage branded credit cards for businesses, such as airlines and hotel chains.
5. Prepaid card issuers: Issue preloaded cards with funds used for purchases, ATM withdrawals, and other transactions.
6. Secured card issuers: Provide credit cards that require a security deposit to be placed on the card, typically used as collateral if the cardholder doesn’t make payments.