What Is a Card Issuer and How Does It Work

A card issuer is a financial institution that provides credit cards to consumers. They are responsible for managing the cards, setting interest rates, and handling customer accounts.

Card issuers typically partner with banks, credit unions, or other financial institutions to issue cards. This partnership allows them to leverage the bank's infrastructure and customer base.

The card issuer's main goal is to provide a convenient and secure payment method for customers. They do this by setting up a network of merchants who accept the card for payment.

Card issuers also provide various services to customers, such as online account management and customer support.

There are over 80 active card issuers in the US alone, and they have multiple responsibilities related to electronic payments. They facilitate point-of-sale transactions and provide businesses with tailored credit solutions.

Card issuers are not just transaction facilitators, but strategic partners to businesses. They can influence how companies shape business strategies and manage financial risks, and even dictate market trends.

Businesses need to understand how card issuers operate, especially when making decisions regarding card issuer services and policies. Whether you're a retail giant launching a co-branded card or a startup deciding on its payment gateways, it's essential to know how card issuers work with businesses.

As of 2023, Stripe Issuing is the preferred banking-as-a-service infrastructure provider for over 200 million cards created. This highlights the importance of card issuers in the payment industry.

Here are the top 10 credit card issuers in the US in 2020:

Card issuers have to follow government regulations to issue credit cards and work with payment processing networks to facilitate credit card transactions. They must also have the infrastructure to handle the number of transactions and keep the information safe from hackers.

As a card issuer, you play a crucial role in the payment ecosystem. Your primary responsibility is to issue and manage payment cards, which includes setting interest rates, fees, and credit limits.

You're responsible for ensuring the security of cardholder transactions, which involves implementing robust fraud detection and prevention measures. This includes monitoring transactions for suspicious activity and collaborating with other financial institutions to prevent and investigate potential fraud.

Card issuers are also responsible for communicating with cardholders about their accounts, including sending statements and notifications about payment due dates, fees, and credit limits. This helps cardholders stay on top of their spending and avoid late fees.

You must comply with regulatory requirements, such as the Payment Card Industry Data Security Standard (PCI DSS), which ensures the secure handling of cardholder data. This involves implementing strict security protocols and regular audits to ensure compliance.

Card issuers work closely with acquirers and merchants to facilitate transactions and resolve disputes. This includes providing support for cardholders who experience issues with their transactions, such as declined payments or unauthorized charges.

Acquirers are financial institutions that work with businesses to process card transactions, acting as an intermediary between businesses and card issuers during transactions. They provide merchant accounts, ensuring businesses have the necessary tools and systems in place to process transactions.

Acquirers manage transaction settlement, where they transfer funds from the card issuer to the business's regular bank account. They also charge businesses a fee, often a percentage of the transaction value or a fixed charge per transaction.

Acquirers evaluate businesses to determine the potential risks associated with their businesses, which can affect the terms of their partnership, including fees and holdback reserves. They also work alongside businesses to manage and resolve disputes when cardholders initiate chargebacks.

Card issuers, on the other hand, are responsible for issuing credit cards to customers, evaluating credit applications, setting credit limits, and managing customer accounts. They authenticate and authorize transactions for merchants and cardholders in the four-party payment model.

Here's a comparison of acquirers and issuers:

Acquirers and issuers are complementary entities in electronic payments, working together to create a balanced, functioning payment ecosystem.

Card issuers are not just financial institutions, but strategic partners to businesses. They can influence how companies shape business strategies and manage financial risks. Over 80 active card issuers operate in the US alone, and businesses should understand how they operate to make informed decisions.

Card issuers can offer businesses specialized credit cards with higher credit limits, detailed expense tracking, and perks associated with business expenditures. These cards often come with reward structures that offer cash back, points, or other benefits based on categories that businesses typically spend in.

Businesses can benefit from card issuers' tools to monitor and categorize spending, helping them maintain budgets, track expenses, and generate reports for audits or tax purposes. Card issuers also provide expansive fraud protection measures, monitoring transactions for suspicious activities and notifying businesses if anything looks amiss.

Card issuers often allow businesses to integrate their business credit card accounts with popular accounting software, simplifying financial management and making it easier to reconcile expenses and prepare financial statements. They also provide dispute resolution services, investigating and liaising between parties to resolve issues related to disputed charges.

Businesses can partner with card issuers to create co-branded credit cards, bearing both the business's and issuer's logos, often with perks specific to the co-branding business. This can encourage customer loyalty and provide a unique selling point for the business.

Here are some key ways card issuers work with businesses:

Card issuers partner with a variety of companies to offer credit cards, including retail stores, gas stations, airlines, and hotels. These partnerships allow card issuers to expand their customer base and transaction volume.

Co-branded credit cards are a significant part of the card-issuing business. They offer benefits to both the card issuer and the partner business, such as customer loyalty and increased spending.

Co-branded cards can take many forms, including airline miles and retail store discounts. For example, airline co-branded cards offer miles, while retail co-branded cards provide store discounts.

Here are some key aspects of card issuer partnerships:

When working with credit card issuers, you'll often come across the terms "partners" and "co-branded partners." Let's break down the key differences between these two.

Credit card issuers issue the credit card, while co-branded partners do not. This fundamental difference sets the tone for their distinct roles in the partnership.

Here's a comparison of the two:

Understanding these differences can help you navigate the complex world of card issuer partnerships and collaborations.

Partnerships are a crucial aspect of the card issuer business, allowing companies to expand their customer base and transaction volume.

Companies like retail stores, gas stations, airlines, and hotels can issue credit cards by partnering with a bank or credit union.

Co-branded cards are a significant part of card-issuing business, offering benefits to consumers, partner businesses, and card issuers alike.

Consumers get special discounts or rewards, while partner businesses gain customer loyalty and increased spending.

Card issuers expand their customer base and transaction volume through these partnerships.

Here are some examples of co-branded cards:

These partnerships create win-win situations, driving customer engagement and revenue for both the issuer and the partner brand.

Card issuers have a complex business that involves various revenue models, strategic partnerships, and risk management strategies. They employ sophisticated risk management strategies to protect their business, including risk appetite frameworks that track risks in specific business areas.

Card issuers use color-coded systems to assess risk levels in real-time, with green indicating low risk, amber indicating caution, and red indicating high risk. This allows them to continuously monitor and adjust their risk management approach.

To manage high-level risks, issuers involve risk committees and even boards of directors in the decision-making process. They focus on stability in their risk management approach, rarely changing threshold limits.

Issuers use threshold limits to trigger action when risk levels are breached. They adjust their portfolio strategy rather than simply raising limits when breaches occur, which helps anticipate and mitigate risks before they escalate.

Here are the key risk management strategies employed by card issuers:

Card issuers must also comply with various federal laws and regulations, including the Truth in Lending Act (TILA) and the Electronic Fund Transfer Act (EFTA). These regulations set forth specific obligations for credit card issuers, such as investigating and resolving billing errors and providing 45 days' notice before increasing annual percentage rates (APRs).

Card issuers have established processes for handling disputes and chargebacks, which serve as a crucial consumer protection mechanism. This is because chargebacks allow cardholders to dispute fraudulent charges, billing errors, or issues with goods and services.

The Fair Credit Billing Act in the US and the Consumer Credit Act in the UK provide legal frameworks for these dispute processes, ensuring consumers have recourse when faced with problematic transactions.

As we look at the global card issuer landscape, it's clear that the industry is dominated by a few large players, with the top five issuers holding around 75% of the market share.

In terms of regional perspectives, the US is a significant market, with over 1 billion cards issued in 2020.

The Asia-Pacific region is also growing rapidly, with China and India being key drivers of this growth.

Card issuing practices vary significantly across the globe, with traditional banks dominating developed markets but emerging markets witnessing a transformation.

In North America, leading platforms like Marqeta and Galileo Financial Technologies offer API-driven approaches and comprehensive financial solutions.

Wallester is a prominent player in Europe, providing branded payment card solutions.

NymCard primarily serves the Middle East and North Africa region, catering to its unique market needs.

The market offers numerous card issuers, each with unique strengths and regional coverage, making it essential for businesses to choose the right partner for their specific needs.

Businesses from various sectors can now adopt card issuing functionality, thanks to technology companies that provide card manufacturing, issuance, and banking services.

Cross-border transactions can be complex, involving multiple players and additional fees. Foreign transaction fees, typically ranging from 1% to 3%, are often charged by credit card issuers for purchases that pass through a foreign bank or are in a currency other than the U.S. dollar.

Paying in local currency when abroad can help avoid overcharging. This is because currency conversion is then handled automatically by the credit card network using their exchange rate.

Even transactions in USD may incur foreign exchange fees if they pass through a foreign bank. This highlights the complexity of cross-border payments in today's global economy.