Understanding Card Issuer Processor: Key to Efficient Payment Systems

A card issuer processor plays a vital role in facilitating smooth transactions between merchants, cardholders, and banks. They ensure that payments are processed efficiently and securely.

Card issuers outsource their payment processing to specialized companies, known as third-party processors. This allows them to focus on core banking functions while leaving payment processing to experts.

These processors handle authorization, clearing, and settlement of transactions, working closely with merchants' acquirers and card networks to verify transactions and transfer funds.

On a similar theme: Third Party Processors and Credit Cards

A card issuer processor is not the same as an issuing bank, but rather a facilitator that connects the two in the payment process.

The issuing processor helps bridge the relationship between the issuing bank and the acquiring bank and merchant account, making the transaction happen.

It's essential to note that the funds are transferred from the issuing bank to the acquiring bank when you make a payment with a card.

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An issuer is essentially the bank or financial institution that issues a credit or debit card to a cardholder. They're responsible for managing the cardholder's account and ensuring that transactions are processed smoothly.

Issuer processors connect card issuers like these to card networks, allowing for seamless payment transactions. This connection is crucial for the smooth operation of the payment ecosystem.

The issuer is responsible for managing the cardholder's account, which includes checking available balances and authorizing or declining transactions on their behalf. This is a critical task that helps prevent overspending and protects the cardholder from fraudulent activities.

Issuer processors also ensure that funds flow properly in and out of cardholder accounts, which is essential for settling and reconciling transactions. This process helps maintain the integrity of the payment system and prevents errors or discrepancies.

Issuer processors play a vital role in monitoring and protecting the card issuer's program from fraud. They use tools like 3DS and transaction risk scoring to detect and prevent fraudulent activities, protecting both the card issuer and the cardholder.

Here's a brief overview of the common tasks every issuer manages:

An issuing processor is not the same as an issuing bank, but rather helps facilitate the relationship between the two.

The issuing processor connects the issuing bank with the acquiring bank and merchant account of the transaction process, making the transaction happen.

An issuing bank is a bank or financial institution that offers payment cards to consumers on behalf of card networks.

In the payment process, funds are transferred from the issuing bank to the acquiring bank.

For more insights, see: Why Do Credit Card Payments Take so Long to Process

A Card Issuer Processor is a financial institution that plays a crucial role in the payment processing system.

They are responsible for issuing credit cards to consumers, which involves setting credit limits, monitoring accounts, and managing risk.

Card Issuer Processors use a combination of manual and automated processes to verify the identity of cardholders and assess their creditworthiness.

This verification process helps to prevent identity theft and other forms of financial fraud.

Card Issuer Processors are also responsible for setting interest rates, fees, and other terms and conditions for credit cards.

These terms and conditions are designed to balance the risk of lending with the need to provide credit to consumers.

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A developer-first issuer processor offers high levels of flexibility, allowing card issuers to craft unique products that cater to customer needs while providing the highest levels of security.

Issuer processors make it easier for cardholders to make payments securely online and allow them to use their credit and debit cards at more locations than they would have been able to use them before.

By working with an issuer processor, merchants can reduce costs and increase sales by accepting credit and debit card payments from customers.

Fraud is increasingly sophisticated and card issuers need high levels of control over their program to combat it.

Digital wallet fraud is not disputable since the networks consider them authenticated via the cardholder's Face ID or phone password.

A developer-first issuer processor helps you fight fraud by using parameters like device risk scores.

IMEI numbers and geolocation are also used to prevent fraud.

3DS decisioning protects issuers from chargeback fraud, giving them full control over their programs.

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An issuer processor is a crucial entity in the payment process, working behind the scenes to ensure smooth transactions. It plays a vital role in facilitating payments from customers' bank accounts to businesses' bank accounts.

The issuer processor receives transaction data from payment gateways and sends it to card networks for approval. Card networks, such as Visa or Mastercard, verify the transaction for fraud and ensure the customer has sufficient funds.

Here's a breakdown of the issuer processor's functionality:

The issuer processor's role is often overlooked, but it's essential for secure and efficient transactions.

Issuer processors are crucial for businesses that want to accept credit and debit card payments, making it easier for customers to make payments securely online and increasing the number of locations where customers can use their cards.

Merchants can choose between using an issuer processor, a payment facilitator, or getting a merchant account to process credit and debit card transactions.

Issuer processors can help merchants reduce costs and increase sales by providing a secure and efficient way to process online payments.

Payment facilitators can also be used to accept debit and credit card payments, but they require underwriting and onboarding sub-merchants, who act as the payment facilitator's customers.

Getting a merchant account can be challenging, especially for new businesses with little track record, but it allows businesses to process credit and debit card transactions directly.

On a similar theme: Credit Cards Processing

Working with a card issuer processor can be a game-changer for your card issuing program. To get started, you'll need to establish relationships with network entities like banks, fintechs, or brands that can help you integrate into card network rails.

You'll also need to acquire a bank identification number (BIN) and obtain any additional approvals as needed. This setup is ideal for mature companies that want to own their relationship with their sponsor bank and have the resources and expertise needed to build a card program in-house from scratch.

There are different kinds of issuer processors, and they have different strengths. A developer-first issuer processor, like Lithic, can help you create unique products by accommodating your product team's needs.

To work with a card issuer processor, you'll need to establish relationships with network entities like banks, fintechs, and brands that are launching a card program. This is a crucial step in building a card program.

You'll also need to acquire a bank identification number (BIN) and obtain any additional approvals as needed. This will give you the necessary credentials to operate a card program.

To manage your card program, you can either build an in-house compliance function or work with an issuer processor that can manage your program for you until you're ready. This is a great option for companies that aren't ready to build an in-house compliance function just yet.

Here are the steps to get started with a "processor-only" relationship model:

Your issuer processor will "plug into" your core system and handle transaction processing, managing integrations for personalization data, maintaining issuance files, and implementing your BIN and card profiles with a card manufacturer. This will give you a seamless and efficient payment processing experience.

By working with an issuer processor, you can streamline your payment operations, enhance security measures, and deliver exceptional customer experiences.

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Observability is vital for tech-forward businesses. It enables self-serve debugging, better resourcing planning, and more efficient business workflow management.

Card issuers need high levels of visibility into their card program(s) to self-debug, optimize resources, and efficiently manage business workflows. Real-time webhooks provide this visibility, unlike legacy issuer processors that rely on daily batch processing.

Developer-first issuer processors deliver real-time transaction webhooks, giving card issuers full visibility into every cardholder and card transaction. This includes the lifecycle of every transaction and cardholder.

Here are some benefits of real-time transaction webhooks:

Lithic’s Events API and Webhooks provide real-time alerts on everything from digital wallet tokenization attempts to chargeback case updates to transaction settlements. Card issuers can also replay failed transaction webhooks in case of disruptions.

Detailed results in transaction webhooks provide clear and insightful decline reason codes, such as AUTH_RULE_BLOCKED_MCC or ACCOUNT_MONTHLY_SPEND_LIMIT_EXCEEDED. This helps issuers efficiently monitor and automate business workflows at scale.

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The payment processing flow is a complex process, but it's essential to understand how it works. A customer initiates a transaction, and the merchant sends an authorization request through the acquirer to the card network.

The request is then routed to the issuer processor, which verifies the cardholder's account information and checks for sufficient funds or credit. This is a crucial step to ensure the transaction is legitimate and the customer has the necessary funds.

The issuer processor assesses potential fraud risks and makes a decision to either approve or decline the transaction. This decision is based on the factors mentioned earlier.

Here's a breakdown of the payment processing flow:

The issuer processor plays a critical role in this process by managing authorization requests and verifying cardholder information. This ensures successful transactions and maintains the integrity of the payment system.

Partnering with a reliable issuer processor streamlines payment systems and minimizes administrative tasks.

By collaborating with an issuer processor platform, card issuers can gain a host of benefits, including streamlined payment processing that reduces complexity and enhances efficiency.

Card issuers can focus on core business objectives without getting bogged down in intricate transaction management details, which are handled by the issuer processor.

Robust security measures are a top priority for issuer processors, providing advanced encryption techniques, tokenization, and secure storage practices to safeguard sensitive cardholder data.

Compliance with industry regulations, such as PCI DSS, is also a key advantage of working with an issuer processor, helping card issuers meet stringent security standards and maintain customer trust.

Legacy issuer processors force card issuers into one-size-fits-all boxes, but modern consumers demand personalization. A developer-first processor helps you build unique products by giving your product team a seat at the table during the design phase.

This approach allows you to create highly customized workflows to suit your program's needs, whether using proprietary signals to combat fraud or building custom ledgers. A developer-first issuer processor's modular approach can help you endlessly customize your program and differentiate your product in the market.

By partnering with a developer-first issuer processor, you gain control over various aspects of a card program, such as 3DS authentications and tokenization requests. This enables issuers to fight back against sophisticated fraudsters and protect their bottom line.

With granular controls, issuers can apply additional security to online card transactions and reduce chargeback liability. By participating in the 3DS authentication flow, card programs gain access to 30+ data fields on the transaction and the person who made the transaction.

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Endless customization is within reach with a developer-first issuer processor. This type of processor gives your product team a seat at the table during the design phase, allowing you to build unique products that cater to customer needs.

You can create highly customized workflows to suit your program's needs, whether using proprietary signals to combat fraud or building custom ledgers. A developer-first issuer processor's modular approach can help you endlessly customize your program and differentiate your product in the market.

Some issuers prefer to be in the authorization stream to make custom authorization decisions on every single transaction using their own ruleset. This is made possible through Lithic's ASA (Authorization Stream Access) functionality.

Other issuers prefer to set static authorization rules on each card or across the entire card program and have Lithic enforce their specified rules. This is handled through Lithic’s Authorization Rules API.

This type of flexibility gives issuers the ability to build unique card programs that are adapted to the specific needs and behaviors of their chosen cardholder segment.

Having control over card transactions is crucial for issuers to create unique and safe card products. Developer-first issuer processors provide issuers with programmatic controls.

3DS authentication flows are a merchant-initiated fraud prevention protocol for applying additional security to online card transactions. A 3DS authenticated transaction creates a chargeback liability shift 100% onto the issuer.

At Lithic, we’ve built collaborative 3DS authentication decisioning, giving issuers the controls over online fraud-fighting tools like never before. This enables issuers to leverage 30+ data fields on the transaction and the person who made the transaction.

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Card programs gain access to data fields like the email address provided at checkout, the IP address of the buyer, and even the time zone of their browser. This data can help issuers prevent massive improvements in fraud loss prevention.

Stopping fraudulent tokenizations using parameters like a device risk score, IMEI number, and location can prevent costly, unrecoverable fraud losses. Lithic provides control over digital wallet tokenizations with two-factor authentication.

Careful planning is key to executing a smooth switch when changing issuer processors. This involves considering several factors, including what you're trying to solve for and your target timeline.

Before planning a switch, you must take into account the current state of your program, including whether you have a live program today and how your relationship is with your current issuer processor. You should also consider who will own and operate your new ledger and what partnerships you need.

To define the scope of your switch and create realistic deadlines, ask yourself these key questions: What are you solving for? What is your target timeline? Do you have a live program today? How's your relationship with your current issuer processor? Who will own and operate your new ledger? What partnerships do you need? Are you PCI-compliant? Is your current issuer processor your program manager?

Switching issuer processors can be a complex process, but careful planning is key to executing a smooth switch. You need to consider what you're trying to solve, whether it's better transaction processing or enhanced security measures.

To start, you should ask yourself a few key questions. What are you solving for? What is your target timeline? Do you have a live program today? How's your relationship with your current issuer processor? Who will own and operate your new ledger? What partnerships do you need? Are you PCI-compliant? Is your current issuer processor your program manager? These questions will help you define the scope of your switch and create realistic deadlines.

The goal is to avoid disrupting your cardholders and minimize downtime. To do this, you'll need to execute specific steps within your migration plan. For example, you'll need to verify cardholder information, check for sufficient funds or credit, and assess potential fraud risks.

Here are the key considerations in a checklist format:

Payment gateways operate as the middlemen between issuer processors and credit or debit card companies. They connect a customer's account to the merchant account to approve a transaction.

A payment gateway is the gatekeeper of the cardholder's payment data. It captures the necessary payment information and ensures the funds for the desired transfer are available.

Payment gateways can be used in-store and online. In-store payment gateways use software built into a physical point-of-sale (POS) system, while online payment gateways use cloud-based software to link payers and payees over the Internet.

Without payment gateways, a business could not charge a purchase amount to its customers' credit cards.

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Switching and Comparison can be overwhelming, especially when it comes to understanding the different roles in the transaction process. The main difference between issuer processors and merchant acquirers is the position they sit at within the transaction process.

Issuer processors are connected to the issuing bank, facilitating the process of payments in. This means they handle the incoming payments from customers. The merchant acquirer, on the other hand, helps send these funds to the acquiring bank.

Merchant acquirers play a crucial role in sending funds to the acquiring bank. This is a vital step in the transaction process, ensuring that merchants receive their payments.

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A merchant acquirer is the financial institution that maintains a merchant's account to accept cards. They settle card transactions for a merchant into their account.

The acquiring payment processor and the acquirer can sometimes be one and the same entity. They collect details from payment card transactions accepted by retailers and send them to card issuers via credit card networks, known as interchange.

Curious to learn more? Check out: Card Issuer vs Acquirer

Issuer processors are companies that enable fintech and non-bank programs globally, offering a wealth of opportunity in the financial industry.

Examples of issuer processors include Carta Worldwide, which has partnered with various organizations to provide innovative payment solutions.

Global Processing Services is another example, known for its flexible and scalable payment processing capabilities.

Tribe Payments has gained recognition for its user-friendly and secure payment solutions, making it a popular choice among fintech companies.

Marqeta is a well-established issuer processor, offering a range of payment processing services and solutions for businesses.

Paymentology is also a notable issuer processor, providing payment services and solutions for various industries and sectors.

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A merchant acquirer is the financial institution that maintains a merchant's account to accept cards. They settle card transactions for the merchant into their account.

The acquirer collects details from payment card transactions accepted by retailers. They then aggregate and separate those payments, sending them to card issuers via the respective credit card networks, known as 'interchange'.