Card issuing 101: What it is and what businesses need to know

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Issuing

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  1. 导言
  2. What is a card issuer?
  3. What do card issuers do?
  4. Card issuer vs. acquirer: What’s the difference?
    1. Card issuers
    2. Acquirers
    3. How card issuers and acquirers are different
  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, since 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 parties. 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 maintain a favorable 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 temporarily freeze cards if suspicious behavior is detected.

  • Rewards and loyalty programs
    Many card issuers offer incentive programs based on card usage. These can range from cash back to points redeemable 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 expiration 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 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 authorization and approval: When customers make a purchase using their card, the card issuer determines whether the transaction will be authorized 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 repay 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: After a customer’s card issuer approves a transaction, the acquirer manages the fund transfer from the issuer to the business’s regular bank account.

  • Merchant fees: For their services, acquirers charge businesses a fee, 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 are different

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

  • Risk profile: Card issuers manage risks associated with customers’ creditworthiness, and 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 they have the means to make purchases, while acquirers represent businesses, ensuring 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 while facilitating electronic transactions, they interact with businesses in other scenarios:

  • Business credit cards
    Many card issuers offer specialized 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 categorize spending. This helps businesses maintain budgets, track expenses, and generate reports for audits or tax purposes.

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

  • Business partnerships
    Card issuers sometimes partner with businesses to offer special promotions or discounts to cardholders. 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 easily reconcile expenses and prepare financial statements.

  • 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 issuer’s logos, often come with perks specific to the co-branding business, encouraging customer loyalty.

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

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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