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. It approves transactions, establishes terms for card usage, and assumes any financial risks.

• 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. You can drive repeat business by associating your brand’s reputation with the card’s convenience and benefits.

FIS Worldpay data shows that consumer credit card transaction values surged nearly $800 billion between 2021 and 2022, surpassing $13 trillion.¹ These numbers reflect growing consumer preference and broad adoption of card payments.

Understanding how card issuers work is critical for businesses if you’re considering issuing your branded card. With this knowledge, you can make informed decisions about your card issuer.

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

What is a card issuer?

A card issuer is a financial institution, usually a bank or credit union, providing payment cards to consumers and businesses. These cards can be credit, debit, prepaid, or virtual. Card issuers handle everything from evaluating cardholder eligibility and setting credit limits to managing accounts and processing eCommerce payment transactions. Sometimes, 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, authorization, 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 must 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 various financial needs.

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

On top of that, card issuers set interest rates on unpaid balances and may impose annual fees, late payment penalties, and other service-related charges. These fees help balance credit flexibility 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.

Card issuers employ advanced fraud detection systems to manage risk further and protect against fraud. These systems monitor transactions for unusual or‌ fraudulent activity and can temporarily freeze cards if suspicious behavior 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 financial system's integrity 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 safeguards the issuer and cardholders and 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-labeled cards, enhancing the cardholder experience with exclusive deals or perks. These customizable cards can bear your business's logo, helping 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 financial risks.

Meanwhile, card networks facilitate card payments by handling global authorization, clearing, and settlement of transactions. They also set and enforce security standards to protect against fraud. For this service, networks will charge an interchange or processing fee when processing 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 complement each other and play essential roles in a functioning payment ecosystem.

How card issuers and networks work together

The seamless and secure processing of credit and debit card transactions results from ‌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 collaborate at key stages of a card transaction.

Types of cards and types of card issuers

Knowing the card type and issuer type is vital for businesses that accept card payments 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 optimize 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 fees. If you accept more credit card payments than debit card payments, you can work with your processor to find cost-effective alternatives.

Likewise, identifying common card issuers can also help you reduce costs. 

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

A credit card number, known as a Primary Account Number (PAN), is a unique identifier assigned to each card. It typically consists of 16 digits, although some may have more than 16. The PAN identifies 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), 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. Still, they're also ‌critical to consumers, and understanding what consumers want is critical to launching a successful card program.

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 check out from your store. By accepting multiple card types and local payment methods, you can attract a broader range of customers.

Card issuers manage security and fraud protection

Card issuers are critical 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 merchants and customers from fraud. 

Card issuers offer exclusive benefits and savings

Many card issuers offer rewards, cashback, and loyalty programs that incentivize 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 program that features your logo and brand. You can then offer exclusive benefits and personalized 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 offer special discounts to customers who frequently purchase certain products or services. If you want to launch private-label or branded cards, card issuers can provide the essential infrastructure and expertise to bring these programs to life.

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

Enhance customer engagement

Private-label card programs can significantly boost customer engagement. By offering exclusive rewards, discounts, and special offers tailored to your brand and customer base, these incentives make customers feel valued and 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 personalization 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

Private-label card programs can drive repeat purchases and increase average transaction amounts by providing a convenient and rewarding payment method. Customers with a card associated with your brand are likelier 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 behavior, such as popular products, peak shopping times, and customer preferences, allowing you to make more informed business decisions. Moreover, issuers often share some 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 you and your customers.

Using these benefits, you can effectively build and maintain a loyal customer base, driving long-term growth and success for your business. Enhanced engagement, increased sales, and valuable data insights can create a strong foundation for brand loyalty and product stickiness, ensuring your customers return.

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 the market. As a principal member of Visa, Airwallex Issuing allows your cardholders to transact securely in 170+ currencies worldwide.

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

Sources

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