What is a card issuer and how do they work?

Key takeaways

• A card issuer is a bank or financial institution that issues cards to customers. Card issuers approve transactions, establish terms for card usage, and assume any financial risks.

• Therefore, card issuers evaluate transactions by checking available funds, credit limits, and other criteria to ensure compliance with the cardholder’s account settings and financial boundaries.

• Card issuers sometimes work with businesses to issue private-label cards, which can strengthen customer loyalty. By associating your brand’s reputation with the card’s convenience and benefits, you can drive repeat business.

FIS Worldpay data shows that consumer credit card transaction values surged by nearly US$800 billion between 2021 and 2022, surpassing US$13 trillion¹. These numbers reflect continued and growing consumer preference and broad adoption of card payments.

For businesses, understanding how card issuers work is critical if you’re thinking about issuing your own branded card. With this knowledge, you can make informed decisions on your card issuer.

In this article, learn what a card issuer is, how it works, the benefits it offers, and how to issue your own cards with Airwallex.

What is a card issuer?

A card issuer is a financial institution, usually a bank or credit union that provides payment cards to consumers and businesses. These cards can be credit, debit, prepaid, and virtual cards. Card issuers handle everything from evaluating cardholder eligibility and setting credit limits to managing accounts and eCommerce payment processing transactions. In some cases, they also take on the financial risk associated with card usage.

How do card issuers work?

Card issuers provide credit and debit cards to cardholders, allowing them to pay for goods and services. Typically, these issuers are banks that partner with card schemes like Visa and Mastercard. The card schemes handle transaction processing, authorisation, and payment flows between card issuers, merchants, and cardholders. Some, like American Express, operate as both the issuer and the card scheme. Issuers rely on card schemes to process transactions.

What are the key functions of card issuers?

Because card issuers manage financial transactions between customers, businesses, and regulatory bodies, they need to balance risks for all parties. Here's a closer look at the key functions of card issuers:

Card issuers provide payment card options and manage financial risks

Card issuers issue ‌various payment cards, including credit and debit cards, both physically and virtually. Certain issuers can also issue cards that support multiple currencies and serve single-use or recurring transactions, serving a variety of financial needs.

To effectively manage financial risks, issuers conduct thorough assessments of potential cardholders, utilising credit scores and other criteria. This rigorous evaluation ensures that they make informed decisions and extend credit responsibly.

Additionally, card issuers set interest rates on unpaid balances and may impose fees such as annual fees, late payment penalties, and other service-related charges. These fees help balance the flexibility of credit with risk management.

Card issuers review and approve transactions and protect against fraud

When a cardholder makes a purchase, the card issuer evaluates the transaction based on available credit, payment history, and other factors to ensure smooth and secure processing. This protects both the cardholder and the issuer.

To further manage risk and protect against fraud, card issuers employ advanced fraud detection systems. These systems monitor transactions for unusual or‌ fraudulent activity and can temporarily freeze cards if suspicious behaviour is detected. This comprehensive approach ensures a secure and reliable payment experience.

Card issuers ensure compliance with financial regulations

Card issuers play a ‌role in maintaining the integrity of the financial system by adhering to strict regulatory standards. They ensure that all card issuance and transaction processes comply with local and international financial regulations, including anti-money laundering (AML) and Know Your Customer (KYC) requirements. This commitment to compliance not only safeguards the issuer and cardholders but also fosters trust and transparency in the financial ecosystem. By staying ahead of regulatory changes and implementing robust compliance programs, card issuers help prevent financial crimes and protect the interests of all stakeholders.

Card issuers partner with businesses

Card issuers also collaborate with businesses to offer co-branded or private-labelled cards, enhancing the cardholder experience with exclusive deals or perks. These cards are customisable and can bear your business' logo and help you encourage customer loyalty. Some issuers even enable businesses to tailor these co-branded cards, integrating special promotions or rewards that align with their specific offerings.

What’s the difference between a card issuer and a card network?

Credit card transactions involve two key players: the card issuer and the card network. While card issuers provide payment cards, card networks facilitate transactions between merchants and card issuers. Both serve distinct roles in payment processing.

Card issuers issue payment cards, approve applications, set credit limits and interest rates, manage accounts, offer customer service, and take on the financial risks.

Meanwhile, card networks facilitate card payments by handling the authorisation, clearing, and settlement of transactions globally. They also set and enforce security standards to protect against fraud. For this service, networks will charge an interchange fee or processing fee when they process a consumer’s transaction.

While card issuers and card networks are separate entities, some networks are also issuers. That means they can extend credit directly to cardholders without using third-party banks. For example, while Visa and Mastercard are credit card networks, American Express is both a network and issuer. This means that while a third-party like a bank can only issue Visa and Mastercard, American Express can only be issued directly from the network.

Here’s a comparison between card issuers and card networks:

Card issuers and card networks are complementary, and they each play ‌an important role in a functioning payment ecosystem. 

How card issuers and networks work together

The seamless and secure processing of credit and debit card transactions is a result of ‌close collaboration between card issuers and card networks. While card issuers manage accounts and issue cards, card networks provide the infrastructure and standards that ensure global acceptance and efficient transaction processing.

Here’s a table explaining how the card issuer and the card network work together at key stages of a card transaction process.

Types of cards and types of card issuers

For businesses that accept card payments, knowing the type of card and type of issuer is important since different card types and issuers may require specific payment gateways or processing systems. Ensuring compatibility can prevent transaction failures.

Here are the most common types of cards and their appeal to cardholders.

Knowing the card types can help you optimise transaction processing by ensuring compatibility with payment gateways. It can also help you manage costs. For example, international business debit cards generally have low processing fees, whereas credit cards have higher processing fees. ‌If you find that you are accepting more credit card payments than debit card payments, you can work with your processor to find cost-effective alternatives.

Likewise, being able to identify common card issuers can also help you reduce costs. 

A straightforward way to identify a card issuer is by looking for the logo on the front or back of the card. Most cards prominently display the issuer's name or logo as well as the card's network.

A credit card number, known as a Primary Account Number (PAN), is a unique identifier assigned to each card. They typically consist of 16 digits, although some may have more than 16. They identify the card issuer, the type of card (debit or credit), and the region where the card was issued.

You can take it further by examining the Issuer Identification Number (IIN) or Bank Identification Number (BIN) which are typically the first six digits of a card. These numbers are critical for successful payment processing as they help you accurately verify customer information and ensure efficient routing of transactions.

The role of card issuers in the payment ecosystem

Card issuing is essential to both merchants and consumers. Card issuers are important to businesses because they facilitate secure and efficient transactions, but they're also important to consumers too, and understanding what consumers want is critical to launching a successful card programme.

Card issuers help you expand your customer base 

Card issuers facilitate seamless transactions across in-store, online, and mobile channels, making it easier for customers to checkout from your store. By accepting a variety of card types and local payment methods, you can attract a wider range of customers.

Card issuers manage security and fraud protection

Card issuers play a critical role in helping you reduce risks and protect your bottom line. Card issuers implement security measures such as encryption, tokenization, and real-time fraud detection systems, to protect both merchants and customers from fraudulent activities. 

Card issuers offer exclusive benefits and savings

Many card issuers offer rewards, cashback, and loyalty programs that incentivise consumers to use their cards more frequently, which can lead to increased spend. Card issuers sometimes collaborate with merchants to offer special promotions and discounts, which can help you acquire new customers.

Card issuers drive brand loyalty through private-label cards

Card issuers can drive brand loyalty through private-label cards by working with card issuers to roll out a card programme that features your logo and brand. You can then offer exclusive benefits and personalised rewards, which can in turn strengthen brand recognition and encourage ongoing patronage of your brand.

Benefits of working with a card issuer

Partnering with a card issuer can greatly enhance your business. Apart from being able to expand your customer base and earning potential, you may also explore innovative ways to use your partnership with card issuers.

You can work with card issuers to enhance your brand by working with them on co-run branded campaigns, or offering special discounts to customers who frequently purchase certain products or services. If you’re looking to launch private-label or branded cards, card issuers can provide the essential infrastructure and expertise to bring these programmes to life.

Here's why collaborating with a card issuer is a strategic move:

Enhance customer engagement

Private-label card programmes can significantly boost customer engagement. By offering exclusive rewards, discounts, and special offers that are tailored to your brand and customer base, these incentives not only make customers feel valued but also encourage them to return to your store or website more often. For example, you can offer bonus points for every dollar spent, early access to new products, or special discounts on their birthday. This level of personalisation can create a strong emotional connection with your customers, making them more likely to remain loyal to your brand and fostering a sense of brand stickiness.

Increased sales and brand loyalty

By providing a convenient and rewarding payment method, private label card programmes can drive repeat purchases and increase average transaction amounts. Customers who have a card associated with your brand are more likely to choose your business over competitors, especially when they can earn rewards or discounts with each purchase. Also, the ease of use and the added value of the card can encourage customers to spend more per transaction, leading to higher overall sales. This consistent engagement and the unique benefits of the card can significantly improve brand loyalty and product stickiness, making it harder for customers to switch to other brands.

Gain data insights

Card issuers can also provide valuable data and analytics on customer spending habits, which can help you refine your marketing strategies and improve customer service. This data can reveal patterns in customer behaviour, such as popular products, peak shopping times, and customer preferences, allowing you to make more informed business decisions. Moreover, issuers often share a portion of the interchange fees and other revenue streams, providing an additional income source for your business. This financial benefit can help offset the costs of running loyalty programs and other marketing initiatives, making the private label card a win-win for both you and your customers.

By using these benefits, you can effectively build and maintain a loyal customer base, driving long-term growth and success for your business. The combination of enhanced engagement, increased sales, and valuable data insights can create a strong foundation for brand loyalty and product stickiness, ensuring that your customers keep coming back.

Launch and issue your own cards effortlessly with Airwallex

If you're a platform seeking to create more value for your users, Airwallex offers a powerful card issuing API solution to develop your own card proposition.

Airwallex Issuing can help you increase your brand awareness and exposure by letting you issue your own branded virtual, physical, and/or digital cards in 40+ countries, even if you aren’t present in-market. As a principal member of Visa, Airwallex Issuing allows your cardholders to transact securely in 130+ currencies worldwide.

Airwallex will partner closely with you to build a card programme tailored to your business needs. With Airwallex, flexible monetisation options, including transaction and annual fees provide additional revenue streams. Use real-time insights to optimise your card programme, so you can personalise rewards to keep your customers on your app or website.

Sources

¹https://www.worldpay.com/en/global-payments-report