Issuing Bank

Issuing banks are banks that offer payment cards through card associations or networks to consumers directly. These cards include credit cards, debit cards, prepaid cards, contactless devices, etc. The issuer acts as a bridge between the customer and these associations. Its aim is to provide credit and other financial services to customers, while managing risks and generating profits for the bank.

These banks are responsible for authorizing transactions. Their first step is to ensure that the cardholder has enough funds or credits to make the purchases. Thus, they make sure the account is verified and has passed the regulations set forth by the banking policies. In addition, the bank bears financial responsibility for the cardholder's actions.

• Issuing banks offer payment cards through card associations or networks to consumers directly.
• One of its primary responsibilities is to assume responsibility for the payment of debts the cardholders incur. It typically splits the credit liability with the acquiring bank by the card network rules if the customer does not have enough money to complete the transaction.
• The final decision on whether or not a transaction is accepted or declined by issuers will be revealed by the transaction's outcome.
• These banks generate revenue through credit card interest, account, and transaction fees.

An issuing bank issues credit or debit cards for consumers and looks into the settlements and transactions done by them. They are known as "issuers" and are similar to acquiring banks that are members of card networks (MasterCard, Visa, American Express, etc.). In a payment transaction, this bank is on the other side of the merchant.

A transaction begins when a customer purchases at a store, restaurant, or other business. The customer then uses their credit or debit card to start the transaction. The acquirer sends this data to the card network, which decides whether to approve or decline the transaction. In other words, it moves from the merchant via an acquiring bank, through the relevant card network, and finally to the issuer.

The issuing bank must then approve these transactions. This mostly entails ensuring the customer has the credit or money available for the purchases. It also includes checking account information and subjecting the transaction to rigorous checks of standards and regulations. Usually, it will authorize the transaction and transmit its approval to the acquiring bank, completing the payment. This involves transferring the cash from the card-issuing bank to the acquiring bank, assuming the consumer has enough money to cover the purchase cost and has stayed within their daily or monthly limit.

Responsibilities

The issuer also provides financial support for transactions done with the relevant card. Therefore, one of its primary responsibilities is to assume responsibility for the payment of debts incurred by cardholders.

The card issuing and acquiring banks typically split the credit liability by the card network rules if the customer does not have enough money to complete the transaction. Because of this, card issuers typically charge a fee for each card transaction to cover the costs involved with their part of the transactions. As a result, these banks generate revenue through credit card interest, account fees, and transaction fees. The charges or fees also safeguard against potential fraud or risk.

In addition to it, the application and approval procedure, card distribution, determining conditions and benefits (such as yearly fees and rewards), collecting payments from cardholders, and many other aspects of payment cards are all managed by issuers. Consequently, card issuers decide how much credit to give customers. The final decision on whether or not a transaction is accepted or declined by the issuer will be revealed by the transaction's outcome.

Check out these examples to get a better idea:

Example #1

Nathan is a curious kid. He went to a Ramsey restaurant with his family and saw his dad pay the bill with his Anywhere Visa credit card. Nathan wanted to know how a plastic card could pay for the meal. Thus, he decides to Google the deal.

Consequently, he discovers that it's not mere plastic, and there is involvement for four parties. The consumer (his father), Ramsey Resort (the merchant), Visa (the card network), and Citi (the credit card issuer) are those four. At checkout, one swipe inserts or taps the card. Visa receives the transaction from the restaurant, and Citi receives the transaction from Visa. After reviewing the transaction and approving or rejecting it, Citi will notify Visa of its decision. Lastly, the Visa sends it to the restaurant, deciding whether to approve or reject the transaction.

Example #2

In 2019, Apple and Goldman Sachs launched a credit card called the "Apple card" for Apple users. Apple Inc. is an American multinational technology company, and Goldman Sachs is an American multinational investment bank. Here, the card's issuer, Goldman Sachs, controls all aspects of regulatory compliance through Goldman Sachs Bank USA. Its duties involve underwriting, customer service, underlying platform, and usual regulatory compliance.

Here are the key differences between issuing bank and acquiring bank:

Here are the key differences between issuing banks and advising banks:

This article has been a guide to Issuing Bank and its meaning. Here, we compare it with advising banks & acquiring banks and explain it with its examples. You may also find some useful articles here -

• Correspondent Bank
• Central Bank
• Advising Bank