Credit Card Issuer | B2B Finance Glossary

What is a Credit Card Issuer?

A credit card issuer is a financial institution that issues credit cards to customers, whether those customers are businesses or consumers. Credit card issuers, or issuing banks, create, manage, and approve applications allowing their customers to obtain credit card accounts. Credit card accounts can be very beneficial when it comes to borrowing money, increasing one’s credit, and earning rewards points.

Credit card issuers are members of the card schemes, ie, credit card payment networks such as Mastercard or Visa; however, it is possible for the credit card issuers to operate as both the issuer and the card scheme itself.

What is the Difference Between a Credit Card Issuer and a Card Scheme?

Credit card issuers are primarily responsible for setting credit card limits, offering credit card benefits, managing credit card interest rates and charging fees, resolving disputes, and approving customers for new lines of credit.

On the other hand, card schemes develop and manage their processing networks, participant rules, and brands. Their goal is to ensure that credit card holders can use their cards as much as possible in as many different locations as possible.

What do Credit Card Issuers Do?

When cardholders swipe their cards, they borrow money from a credit card issuer. Credit card issuers are financial institutions that come in many forms, including banks, fintech companies, and credit unions.

Remember, credit card issuers are in charge of setting credit card limits, offering card benefits, charging interest rates and other fees, and issuing new lines of credit. They’re also responsible for approving or declining your purchases and authorizing transactions for the merchant you’re trying to buy something from.

Here are some of the most well-known card issuers:

• American Express
• Discover
• Citi
• U.S. Bank
• Wells Fargo
• Bank of America
• Barclays

Remember that card issuers are separate from card schemes such as Visa and Mastercard.

How do Credit Card Issuers Differ From Co-branded Credit Card Partners?

Many credit cards are co-branded and partner with retailers, hotels, and airlines. These partner companies usually appear prominently on the credit cards themselves, confusing consumers into thinking they are issued by the partner alone. However, these cards are not issued by the co-branding partner; they are issued by the bank or credit union, and the issuer works with the co-branding partner.

When a customer uses a co-branded card, the card issuer purchases reward points or miles from the co-branded partner and then assists in issuing these rewards to the cardholder’s credit card account.

If the customer has an issue with the card, he or she will need to contact the credit card issuer. The customer must contact the co-branded partner if there’s an issue with the rewards.

How do Credit Card Issuers Operate Within the Payment Cycle?

The model that allows payments to be processed via a credit card is often called a four-party or four-corner model. That’s because four main players make these transactions possible:

• The merchant. The business accepting credit cards as payment for goods and services.
• The acquirer. Also known as the merchant acquirer or acquiring bank, is the bank account provided by the merchant’s financial institution; it allows the merchant to accept credit cards as a form of payment from its customers.
• The cardholder. The customer using a credit card to buy goods and services from the merchant.
• The credit card issuer. It issues credit cards to customers so they can use them to make purchases.

When cardholders decide to purchase online, they enter their credit card information into a payment portal and submit it. From there, the information is passed to the merchant acquirer.

The acquirer then passes the information to the card scheme tied to the customer’s card. The card scheme then needs to authenticate the cardholder’s identity and authorize the payment by ensuring enough funds are available on the cardholder’s end to make the transaction. If the cardholder is authenticated and the payment is authorized, the issuer brings this information to the card scheme, passing the approval response to the acquirer.

Then, the acquirer relays this information to the merchant, who confirms that the payment has gone through. Finally, the transaction is complete, and it’s up to the merchant to follow through with delivering the goods and services that the customer paid for to the customer.