Card issuing – the basics: What it is and what businesses need to know

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Issuing

With over 100 million cards created, Stripe Issuing is the preferred banking-as-a-service infrastructure provider for disruptive startups, innovative software platforms and evolving enterprises.

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  1. Introduction
  2. What is a card issuer?
  3. What do card issuers do?
  4. Card issuer vs acquirer: Whats the difference?
    1. Card issuers
    2. Acquirers
    3. How card issuers and acquirers differ
  5. How do card issuers work with businesses?

Card issuers are financial institutions that have multiple responsibilities related to electronic payments, from facilitating point-of-sale (POS) transactions to providing businesses with tailored credit solutions. As of 2023, there were over 80 active card issuers in the US alone.

Businesses should understand how card issuers operate, as card issuers can influence how companies shape business strategies and manage financial risks, and even dictate market trends. Whether you're a retail giant launching a co-branded card or a startup deciding on its payment gateways, you'll need to make decisions regarding card issuer services and policies.

Below, we'll explore how card issuers are not just transaction facilitators, but strategic partners to businesses. Here's what you need to know.

What's in this article?

  • What is a card issuer?
  • What do card issuers do?
  • Card issuer vs acquirer: What's the difference?
  • How do card issuers work with businesses?

What is a card issuer?

A card issuer is a financial institution, typically a bank, that provides payment cards to customers. These include credit, debit and prepaid cards. Issuers approve transactions, set terms and conditions for card use, and bear the associated financial risks.

What do card issuers do?

Card issuers have many responsibilities related to financial transactions. They interact with customers, businesses and regulatory bodies, facilitating transactions while balancing risk and reward for all the parties involved. Here's an overview of what card issuers do:

  • Issuance of payment cards
    Card issuers provide customers with a variety of payment cards, including credit and debit cards. Each card type serves a distinct financial purpose for the cardholder.

  • Transaction approvals
    When a cardholder makes a purchase, the card issuer determines if the transaction should be approved based on available funds, credit limits and other criteria.

  • Billing and statements
    Card issuers generate monthly statements for credit card users, detailing transactions, outstanding balances, minimum payments and due dates. Timely payment helps to maintain a favourable credit score for the cardholder.

  • Interest and fees management
    Card issuers establish and impose interest rates on unpaid credit card balances. Issuers might also charge annual fees, late payment fees or fees for other services associated with card usage, to customers and businesses who accept their cards.

  • Risk management
    Card issuers bear the financial risk if a cardholder defaults on their obligations. They have systems to assess the creditworthiness of potential cardholders, often using credit scores as a gauge.

  • Fraud detection
    With the rise of digital transactions and associated fraud, card issuers have developed sophisticated fraud-detection mechanisms. They monitor for unusual activities and can freeze cards temporarily if suspicious behaviour is detected.

  • Rewards and loyalty programmes
    Many card issuers offer incentive programmes based on card usage. These can range from cash back to points that can be redeemed for goods and services.

  • Customer support
    Card issuers maintain customer service departments to assist cardholders with queries, report lost or stolen cards, dispute transactions or address other concerns.

  • Dispute resolution
    If a cardholder contests a charge, the card issuer investigates the claim and liaises with businesses to reach a resolution.

  • Card renewals and upgrades
    Payment cards have expiry dates. Card issuers oversee the process of renewing cards and might also offer upgrades to cardholders based on their spending habits or creditworthiness.

  • Regulatory compliance
    Card issuers must adhere to the financial regulations set forth by governing bodies, which can range from interest rates to data protection.

  • Partnerships with businesses
    Many card issuers collaborate with retailers and service providers to offer co-branded cards, which often come with exclusive deals or perks for cardholders.

Card issuer vs acquirer: What's the difference?

Card issuers and acquirers are both key players in the payments ecosystem, serving distinct roles but facilitating electronic transactions together. Here's a comparison of their roles:

Card issuers

  • Primary role: a card issuer is a financial institution that provides payment cards to customers. These can include credit, debit and prepaid cards.

  • Transaction authorisation and approval: when customers make a purchase using their card, the card issuer determines whether the transaction will be authorised and approved, based on factors such as available balance or credit limit.

  • Billing and interest: the issuer is responsible for generating monthly credit card statements for cardholders. They also set interest rates and collect interest on outstanding balances.

  • Risk management: card issuers assume the financial risk associated with a cardholder's ability to pay back borrowed funds.

  • Customer relations: issuers interact directly with cardholders, addressing queries, managing lost card reports and offering new products.

Acquirers

  • Primary role: an acquirer, also known as a merchant acquirer or acquiring bank, is a financial institution that works with businesses to process card transactions. It acts as an intermediary between businesses and card issuers during transactions.

  • Merchant accounts: acquirers provide merchant accounts, enabling businesses to accept card payments. They ensure that businesses have the necessary tools and systems in place to process transactions.

  • Transaction settlement: once a customer's card issuer has approved a transaction, the acquirer manages the fund transfer from the issuer to the business's standard bank account.

  • Merchant fees: acquirers charge businesses a fee for their services, which is often a percentage of the transaction value or a fixed charge per transaction.

  • Risk assessment: acquirers evaluate businesses to determine the potential risks associated with their businesses. This assessment can affect the terms of their partnership, including fees and holdback reserves.

  • Dispute management: when cardholders initiate chargebacks or dispute transactions, acquirers work alongside businesses to manage and resolve these issues.

How card issuers and acquirers differ

  • Who they work with: while card issuers interact primarily with individual customers, acquirers work directly with businesses.

  • Risk profile: card issuers manage risks associated with customers' creditworthiness, while acquirers assess and manage the financial risks of partnering with businesses.

  • Funds flow: in a typical card transaction, funds flow from the card issuer (representing the customer) to the acquirer (representing the business).

Card issuers and acquirers are complementary entities in electronic payments. Card issuers represent the customers, ensuring that they have the means to make purchases, while acquirers represent businesses, ensuring that they are able to accept those payments. Together they create a balanced, functioning payment ecosystem.

How do card issuers work with businesses?

While card issuers primarily engage with individual customers when facilitating electronic transactions, they interact with businesses in other scenarios.

  • Business credit cards
    Many card issuers offer specialised credit cards tailored for business needs. These cards often come with higher credit limits, detailed expense tracking and perks associated with business expenditures, such as travel or office supplies.

  • Expense management
    Card issuers provide businesses with tools to monitor and categorise spending. This helps businesses to maintain budgets, track expenses and generate reports for audits or tax purposes.

  • Rewards and incentives
    Business credit cards often come with reward structures. These can offer cash back, points or other benefits based on categories that businesses typically spend in, such as advertising or delivery.

  • Business partnerships
    Card issuers sometimes partner with businesses to offer cardholders special promotions or discounts. Such partnerships can boost sales for the business while providing added value for the card issuer's customers.

  • Payment solutions
    Beyond credit cards, some card issuers offer payment solutions tailored to businesses. These can include POS systems, online payment gateways and payroll services.

  • Financing solutions
    Businesses, especially smaller ones, might require short-term financing to manage operational costs. Card issuers can provide flexible financing options or short-term loans through the business's credit card account.

  • Fraud protection
    Card issuers often offer businesses expansive fraud-protection measures. They monitor transactions for suspicious activities and can notify the business if anything looks amiss. They also provide tools and education to help businesses reduce their exposure to fraud.

  • Integration with accounting software
    To simplify financial management, card issuers often allow businesses to integrate their business credit card accounts with popular accounting software. This lets businesses reconcile expenses and prepare financial statements with ease.

  • Dispute resolution
    If a business disputes a charge on their card – whether due to fraud, an error or a disagreement with a vendor – the card issuer will investigate and liaise between parties to resolve the issue.

  • Co-branded cards
    Some large businesses collaborate with card issuers to create co-branded credit cards. These cards, bearing both the business's and the issuer's logos, often come with perks that are specific to the co-branding business, thus encouraging customer loyalty.

Relationships between card issuers and businesses provide advantages for both entities. While businesses benefit from customised financial solutions, card issuers are able to expand their customer base, diversify their product offerings and deepen their engagement in the commercial sector.

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