What is a card issuer?

You use your credit or debit card every day, right? Whether buying groceries, paying bills, or treating yourself to something nice, you rely on that little piece of plastic (or metal, if you’re fancy) to make it happen. And so do billions of other people worldwide, who spend trillions of dollars with their cards yearly.

But do you know who’s behind the humble card? It’s the card issuer.

Card issuers are the institutions that provide (issue) cards to individuals and businesses. They get to decide if a transaction gets authorized or not.

In this article, we’ll tell you everything you need to know about card issuers, including:

• What is a card issuer, and what does it do?
• Who issues cards?
• What type of cards do issuers provide?
• Who are the top card issuers?
• Why do card issuers decline transactions, and how can merchants respond?

What is a card issuer, and what do they do?

A card issuer, also called an issuer or issuing bank, is an institution that provides individuals and businesses with physical or virtual cards to pay for goods and services. They also play an integral role in the card payment lifecycle, as it has the final say on whether to approve or reject a transaction.

Let’s take a closer look at the different types of functions of a card issuer.

• Account management: Card issuers help cardholders should they lose or have their cards stolen. They also provide a portal for customers to raise disputes, generate statements, and manage account benefits.  
• Dealing with disputes: In the event of a dispute, a cardholder can request that the issuer cancel a transaction or return funds to their account (referred to as a chargeback). Issuers act as an arbitrator, deciding whether to uphold or reverse it.  
• Issuing cards: As mentioned, card issuers provide various payment cards to individuals and businesses to make purchases in person or online. They can be credit cards, debit cards, or prepaid cards.
• Transfer of funds: After a transaction is authorized, the card issuer transfers funds from the cardholder’s account to the merchant’s account.
• Transaction authorization: When a cardholder makes a purchase, the card issuer checks whether they have enough money in their account or available credit. They also check whether the transaction is fraudulent. If everything looks good, the card issuer authorizes the transaction.
• Underwriting and risk management: Card issuers who offer customers credit cards carry out detailed risk assessments on customers to set credit card credit limits.

Is there a difference between issuing banks and acquiring banks? That's a great question! The issuing bank and the acquiring bank are two different entities in the card payment process. They work together to facilitate the transfer of money from the cardholder to the merchant. The issuing bank is where the customer has their account. The acquiring bank (or acquirer or merchant bank) is the one that deals with card payments for the merchant. It ensures the money goes from the issuer to the right merchant account.

Who issues cards?

There are a variety of parties in the financial ecosystem that can issue a card to an individual or business. These include:

• Banks: Banks usually give customers a debit card when they open an account. They also have credit cards customers can apply for.
• Credit Unions: Credit unions are like banks, but they’re owned by their members. They also give customers a debit card when they join and have credit cards customers can get.
• Card Schemes: Most card schemes don’t issue cards directly. For example, you can’t get a Visa or Mastercard card straight from them. American Express and Discover are different. They’re both card schemes and issuers at the same time. So they can give customers cards without working with another bank.
• Fintech Companies: More and more companies are giving out cards to serve their customers and increase the stickiness of their products. For example, Wise is a company in the UK that lets you send money abroad. It also gives its customers a card to use its services.

Is there a difference between card issuers and card schemes? Yes, there is a big difference between card issuers and card schemes. Card schemes, also known as card networks, are the systems that make global commerce possible. They connect the two sides of the transaction (the acquirer and the issuer) and let different banks and merchants work together by sending the information they need to process the payment. They also set the rules and standards for using their cards. These rules make sure the transactions are consistent and reliable and that cardholders and merchants have a smooth experience.

What type of cards do issuers provide?

Card issuers provide several types of cards to account holders. Here are the main types:

• Credit cards: Credit cards give cardholders a credit line, meaning they can buy now and pay it back later. These cards have repayment terms and spending limits, and cardholders incur interest on credit card balances (unless they pay the total amount each month).
• Debit cards: Debit cards give cardholders access to funds in their account and no more (unless an overdraft exists). When customers complete a purchase, the amount is directly deducted from their account.
• Prepaid cards: Prepaid cards give access to funds that have been pre-loaded onto the card. These can be useful for employees making business purchases because they avoid the need to reimburse employees.
• Charge cards: Charge cards are designed for businesses and help them make purchases and manage expenses. Unlike credit cards, the entire balance must be paid back each month.

How a card issuer fits into the payment lifecycle

As we explored in our payment process lifecycle article, many key players are involved in initiating, processing, and completing online payments. Card issuers have a very important and specific role in processing credit and debit card payments. Let’s see an example of how card issuers fit into the payment process.

1. Jacob is planning a trip to Costa Rica and wants to book a flight with American Airlines. He uses his Visa credit card, which is from his bank, J.P. Morgan. He puts his card details at the checkout and clicks ‘pay’.
2. American Airlines' payment gateway and acquirer get to work, sending the request to Visa, the card network for this payment.
3. Visa passes the request to J.P. Morgan, who does some checks, like ensuring Jacob has enough money or credit and that the payment is not a scam.
4. After passing these checks, Jacob’s bank says yes to the payment and tells Visa, which tells the merchant’s acquirer that the payment is good to go.
5. When the merchant gets the message, it confirms the payment with Jacob, and he gets a receipt.
6. J.P. Morgan then sends the money to the merchant’s account, finishing the payment process.

Why do card issuers decline transactions, and how can merchants respond?

Sometimes, things don’t go as planned, and the issuing bank may decline the payment request. In fact, this happens a lot. And there are many reasons why an issuer might say no to a card payment. Some of them are in your control, and some of them are not.

Here are some of the common reasons why an issuer might decline a card payment:

Insufficient funds: This is the most common reason for a payment decline. It happens when the cardholder doesn’t have enough money in their account, or they’ve maxed out their credit limit.

Solution: Ask your customers to use another card or method, like Buy Now, Pay Later, while still in session at the checkout.

Expired payment details: This happens a lot with recurring payments and subscriptions. The card might have expired, or the cardholder might have changed their details.

Solution: Think about using a solution like Network Tokenization or Card Updater. Both keep card details up to date automatically.

Suspicious activity: Lots can trigger an issuing bank's fraud systems. Unusual transaction amounts, frequency, or funds sent to a high-risk merchant are just some examples.

Solution: Network Tokenization can help here too. It gives the issuer more information about the payment, so they can trust it more.

Want to know how to get more payments approved? Read our article on how to boost your authorization rate.

Final thoughts

As we’ve explored, card issuer does far more than simply issue cards to customers. They play a vital role in the payment lifecycle. Understanding how they work and the triggers that cause them to decline transactions is essential for any business looking to boost its payment success.