More than 40 billion payment cards are in active use worldwide, and each one was issued by a card issuer. But what exactly are credit card issuers, and what’s their role in the payments ecosystem? This article will explore all you need to know about credit card issuers and how they come into play when you’re accepting payments at your business.
Key Takeaways
- Card issuers are financial institutions that issue credit cards to cardholders and assume the financial risk of lending to them.
- For every transaction, card-issuing banks partner with other financial services providers to determine whether to approve or deny the transaction.
- Card transactions can be declined due to insufficient funds, suspicion of fraud, an expired card, or incorrect card details.
What Is a Card Issuer?
A card issuer is a financial services provider (e,g., a bank or credit union) that provides credit or debit cards to individuals and businesses. Purchases made with a debit card are charged to the linked checking or savings account of the cardholder, while credit card purchases are funded by borrowed money from the card issuer.
So, when your customers pay for goods and services using their credit card, they are using credit extended by the card issuer. That transaction will only be approved if it is not fraudulent and the cardholder is within their approved spending limits. Card issuers have rigorous systems for evaluating credit applications. They set credit limits and interest rates based on the applicant’s creditworthiness, determined by reviewing their credit history and credit score. To facilitate its various roles in the payments life cycle, card issuers partner with other financial institutions, and we will cover more on how this symbiotic relationship works as we delve deeper into the article.
What Is an Issuing Bank?
An issuing bank is the financial institution that issues payment cards to consumers or businesses and manages the cardholder account. In most cases, the issuing bank is also referred to as the card issuer, so the terms are often used interchangeably.
Issuing banks are typically large financial institutions such as J.P. Morgan Chase, Bank of America, and Citibank. They are responsible for reviewing and approving card applications, setting credit limits, and managing cardholder accounts.
When a customer makes a purchase with a card, the transaction is routed through the card network to the issuing bank. The issuer then evaluates the transaction by checking factors such as available credit, account status, and potential fraud. Then, it either approves or declines the authorization request.
What Does a Card Issuer Do?
A card issuer does everything necessary to facilitate access to available funds or credit lines needed by its cardholders to complete their day-to-day transactions. To help you understand how it goes through this facilitation in more detail, we have broken down its responsibilities into five key tasks:
Extends Credit or Provides Key Funds
- There is a diverse ecosystem of financial institutions and modern fintech companies offering payment cards to users. Their debit and credit card offerings can be in a physical, virtual, or mobile wallet format. Once the card has been duly approved and issued, the card issuer automatically makes funds or credit available to the cardholder. Limitations of credit limits (credit cards) and funds held (debit cards) in the account will, of course, apply.
Manages Risk and Fraud Prevention
- Credit card fraud is a constant threat to cardholders, business owners, and card issuers. But card issuers have developed standards, frameworks, and sophisticated technologies to help detect, prevent, and mitigate its effects.
- Various regulations, such as the know-your-customer (KYC) requirements, the EU’s General Data Protection Regulation (GDPR), and US Anti-Money Laundering (AML) laws, establish standards for identity verification, data protection, and financial monitoring. These frameworks help support fraud prevention and ensure the broader payments ecosystem’s security. Card issuers also employ an extensive toolkit that consists of machine learning algorithms and AI-driven systems to further address the issue.
Handles Billing and Statements
- The entire lifecycle of the relationship between the cardholder and issuing bank is diligently tracked and documented. The issuer will generate and send a comprehensive statement of the cardholder’s activity throughout each billing cycle (typically around 30 days) to ensure transparency and in compliance with the terms of the card issuance agreement. The statement will cover transactions, interest charges, fees, account balances, and any other relevant events or data related to the ongoing relationship.
Processes Authorizations in Real Time
- Customer payments are typically taken via a physical terminal (POS) and online via a payment gateway or mobile wallet.
- Regardless of the medium used, once the transaction details are sent to the issuing bank’s system, it will follow established processes to review each transaction and either approve or deny its completion. The entire process takes just seconds and is facilitated by a payment processor that initiates and manages communication between your payment terminal and the financial institutions involved (card networks, issuing banks, and acquiring banks).
Manages Chargebacks and Disputes
- Chargebacks occur when a customer disputes a transaction with their card issuer, and the funds are reversed to the customer’s account. For example, a customer orders and pays for an item via your eCommerce site, but it never arrives (or arrives damaged). The customer then disputes the transaction, triggering a chargeback event. You, the business owner (or merchant), can challenge the chargeback when the acquiring bank contacts you about it. The card issuer manages the dispute on behalf of the cardholder, in accordance with card network rules, with the final decision determined through a process involving the issuer, the acquiring bank, and the card network.
How a Card Issuer Fits Into the Payment Process
We have covered the varied roles an issuer typically plays within the payment ecosystem in the preceding sections, and now we will show you how those tasks are seamlessly performed within a typical credit card processing transaction.
- Customer Pays: The cardholder enters card information and other details in person or online to initiate payment for goods or services.
- Merchant sends request to acquirer: After the customer submits their payment, the merchant’s payment system securely passes the transaction details to the payment processor, which begins the authorization process and moves the request into the broader card network.
- Network routes request to issuer: The merchant’s payment processor sends transaction details to the issuing bank via the card network.
- Issuer approves or declines: Cardholder’s identity will be verified, and the availability of funds or credit confirmed. At that same time, the issuer will also review the transaction for fraudulent intent, all in milliseconds. If approved, an authorization response code is relayed to the merchant’s processor, confirming to the business owner that the transaction has been authorized.
- Funds settle: The funds are not sent to the business owner’s account immediately; instead, they settle in batches through the networks. The funds are then transferred to the acquiring bank (business owner’s bank) in a process known as settlement. The acquiring bank will subsequently deposit the funds in the business owner’s account as the final step.
Issuer vs Card Network vs Acquirer
Card issuers are different from card networks, just as acquirers are also a different financial entity. As we have explored extensively in this blog, card issuers provide and manage credit and debit cards for cardholders. Card networks don’t directly issue cards to users; instead, they manage the infrastructure that enables card transactions. They connect you, the merchant, via your payment processor to issuers and acquirers by facilitating the flow of transaction data and coordinating settlement between parties.
However, they don’t provide these services and infrastructure for free. Card networks charge transaction and licensing fees that are typically applied to each unique payment. We should add that there are instances where the card issuer and the card network are the same entity. American Express and Discover are two notable examples of this phenomenon. They issue cards and also operate as card networks.
The acquiring bank is the merchant’s (business owner’s) bank. It receives the funds paid by the customer on behalf of the merchant. All of the information about the three financial entities discussed in this section will help you identify where the problem may be if you have an issue with a card transaction.
List of the Major Credit Card Issuers
There are many credit card companies operating in the United States. The Consumer Financial Protection Bureau maintains a database of over 600 card issuers, illustrating just how vast the market is. Listing them all in this article would be impossible. So, we will focus on the four major credit card issuers in the U.S.:
Chase
For the sixth year in a row, the single biggest credit card issuer in the United States, with more than $1.344 trillion in purchase volume, Chase has leveraged its vast customer base to become the most dominant all-around card issuer. It offers a broader range of cards than any other issuer, with premium options like the Chase Sapphire Reserve, standard options like the Chase Freedom Unlimited, and even options for people with new or limited credit history, like the Chase Freedom Rise.
American Express
Coming in second with more than $1.1 trillion in purchase volume and a 19% share of credit card spending, American Express is unique in that it operates as both a card issuer and a card network, and in some cases, also acts as the merchant acquirer. It has carved a niche for itself among higher-income consumers and businesses, a base of card customers who spend heavily, helping the issuer generate vast sums even if it may not have as many cardholders as Chase.
Citi
With the footprint of a globally diversified financial institution, Citi generates more than $594 billion in purchase volume annually. It holds a market share of more than 10% and is best known for its introductory APR offers and balance-transfer promotions.
However, where it truly differentiates itself is in its cross-border payment capabilities and corporate card offerings. Its global consumer finance expertise has given it global reach and partnerships (airlines, retailers, hospitality, etc) that it leverages to offer related services to its cardholders.
Capital One
According to recent industry estimates, Capital One, the master of mass-market lending (small-ticket standard loan products), is the fourth-largest card issuer in the country, generating more than $575 billion in purchase volume and holding more than 10% market share. It’s a mid-tier giant like Citi, unlike American Express and Chase, that generates more than $1 trillion annually in purchase volume. It offers card options for a wide range of credit profiles and is well known for relying heavily on data analytics in its card lending risk models.
Why Card Issuers Decline Transactions
Understanding why card issuers decline transactions will help you better handle such events during day-to-day customer payment interactions. Common causes of card declines include:
Insufficient funds or credit limit
A card transaction will be declined by the card issuer if there are insufficient funds in the linked bank account or the maximum credit limit has been reached. Too many card transactions in a short period, or exceeding the daily limit in a 24-hour period, will also trigger a card decline.
Fraud suspicion
Suspicious activity, such as large foreign transactions or unusual card activity inconsistent with the cardholder’s typical spending habits, can trigger security alerts that cause the issuer to block the transaction.
Expired card
Using an old or inactive card will result in a transaction decline. Transactions made with cards reported as lost or stolen will also be blocked.
Incorrect details
Errors in entering card details (card number, CVV/CVC, billing address, etc.) will trigger an automatic decline. Continuous repetition of the same input errors can result in the issuer freezing the account.
Closing Remarks
This article explains how important it is for you, as a business owner, to have a firm grasp of how card issuers impact your day-to-day business operations. You now know the way a card transaction works, the difference between a card issuer and a card network, and the issues that can trigger a card decline.
Essentially, you are ready to start evaluating payment processors to choose the best provider to help facilitate card payments for your business. It wouldn’t be far-fetched to say we at Kurv are one of the best payment processors for small businesses, and you can learn more about our payment solutions here.
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Frequently Asked Questions
Is Visa or Mastercard a card issuer?
Neither Visa nor Mastercard is a card issuer. Both companies are card networks that provide the infrastructure needed to facilitate card transactions. They help move funds and information between all the entities involved in a card transaction.
Can a company issue its own credit card?
Only companies with legal capability and the financial wherewithal, such as licensed banks, can issue credit cards. The company-branded credit cards known to the average consumer are typically issued by a partner bank licensed to issue them.
How do card issuers decide whether to approve a transaction?
An issuer bears the financial risk if a card transaction goes wrong, such as fraud or excess credit, so sophisticated automated systems evaluate every transaction before deciding whether to authorize or decline the payment.
How can I contact my card issuer?
You can contact your card issuer by calling the customer service number usually placed on the back of the card. Alternatively, you can check the issuer’s website or mobile app for the emergency number, especially if you’ve lost your card or had it stolen.
