What Is an Issuing Bank?
If you’re a credit or debit card owner, you probably heard about an issuing bank. Read on to see what’s behind the issuing bank term.
An issuing bank is a financial institution that is in charge of issuing card to consumers on behalf of the Acquiring Bank or Card Networks. It’s also known as the credit or debit card company or credit union and as the name implies, they pay the acquiring bank on behalf of the customer. They are also giving the authority to grant customer credit card or debit card with the bank logo (sometimes also with that of the acquiring bank).
The most renowned card networks are MasterCard, Visa and American Express. These card networks grant access to issuing banks that are in partner with them to issue cards on their behalf.
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Credit Card Capture or Authorization Capture takes place after payment authorization. It’s when the authorized money is transferred from the customer’s account to a merchant’s account.
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What is the issuing bank role?
The issuing bank serves as a middleman between the acquiring bank or card network and the card holder, by going into contract with the card holder on the account terms and repayment credit card transactions. The issuing bank is the one in charge of the customer’s financial information and account data, using this data to process customer’s credit card application and setting the credit card limit available to the customer.
Moreover, when it comes to credit cards, this bank issue letter of credit to customer to extend a line of credit and also ensure that interests on any transaction made by the card holder will be paid.
In some cases, a financial institution can function as both acquiring and issuing bank. These banks operate on behalf of both the merchant and the customer, like American Express, Discover and Barclays.
Responsibility of issuing bank
The institution also assumes liability for ensuring the payment of debt customer incur with their card and in case of non-payment, in accordance with the card network rules the issuing bank and acquiring bank share the credit liability.
An issuing bank is the one responsible for the transfer of customer financial data to the acquiring bank for processing of transaction. The data sent by the issuing bank to the card network are used to determine if the customer transaction will be accepted or rejected. It is directly in charge of issuing credit or debit card to the customer and offer necessary card maintenance including: card renewal, card limit, suspension, blockage and activation of card.
The issuing bank is the one that will create a revolving account and in terms of credit card, grant customer access to line of credit from which the cardholder can get a cash advance for his/ her credit card transaction.
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