What is the issuer?
An issuing bank, or an issuer, is a financial institution that provides debit/credit cards to customers on behalf of card networks — Visa, Mastercard, American Express etc. Simply put, the issuer opens and maintains bank accounts, issuing credit/debit cards to clients. Let’s consider an issuer as a mediator between a cardholder and a card network.
In payment processing, the issuing bank is responsible for cardholder authentication and transaction authorisation. Put differently, when a customer initiates a payment with a debit/credit card on a merchant’s website, the main issuer’s tasks are to check if there are enough funds on the client’s account to cover the transaction and approve or decline it.
Issuing banks usually charge a fee for every credit card transaction they process to cover their involvement in the transaction processing and the risks they take as lenders. These fees and other operating rules are determined individually by card networks and their issuing banks.
How is the issuer involved in transaction processing?
Now we get to a key question: how and in what sequence does the issuing bank participate in the transaction processing? Here’s a step-by-step overview:
- Step 1: The customer enters their card details for payment on the merchant's checkout page.
- Step 2: This information is securely sent to the acquiring bank.
- Step 3: The acquirer sends a request to the card network to obtain authorisation from the issuing bank.
- Step 4: The card network submits the transaction details to the issuer for authorisation.
- Step 5: The issuing bank authorises the transaction and sends the approval/rejection back to the acquirer, which transfers the funds to the merchant's account.
The issuing bank and the acquiring bank are indispensable intermediaries between buyers, card networks and merchants.
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