What Is an Issuing Bank?
Several parties are involved in the card payment process, and one of them is an issuing bank. But what is an issuing bank? What are its responsibilities and role in the payment process?
An issuing bank, also known as an issuer, is a bank or financial institution that offers payment cards to consumers on behalf of card networks such as Visa, MasterCard, or American Express. These are typically major commercial banks.
Responsibilities of the issuing bank
The issuing bank extends a line of credit to consumers and is responsible for providing financial backing for transactions made with the card. They assume responsibility for the cardholder’s ability to pay off the debt they accumulate by using the credit card or line of credit.
The bank is also in charge of the consumer’s financial information and account data. They offer necessary card maintenance, including card renewals, card limit-setting, suspensions, blockages, and card activations.
Moreover, the issuing bank assumes liability for paying the debts incurred by their cardholders. In case of a non-payment, in accordance with the card network’s rules, the issuing bank and acquiring bank share the credit liability. This is why issuers collect a fee for every card transaction. They need to cover their part in the payment process and the risk they take – for instance, when the cardholder defaults on their payments.
As you can see, issuing banks handle everything consumer-related.
The role in the payment process
The issuer is one of the parties involved in the online payment process, and its main role is to receive and authorize payment tokens.
When a customer makes a purchase and pays with their card, the payment processor forwards the transaction request to the issuing bank. The data sent by the issuing bank to the card network is used to determine whether the customer transaction will be accepted or rejected. If the balance in the customer’s account will cover the costs of the purchase, the issuing bank transmits the approval to the acquiring bank and the sale is completed (the issuing bank sends the funds to the merchant’s acquiring bank).
We can say that the issuing bank serves as a middleman between the acquiring bank or card network and the cardholder by entering into a contract with the card owner on the account terms and repayment of credit card transactions. Note that some banks operate as both an acquiring bank and an issuing bank.
When it comes to payments, the issuing bank also handles chargebacks and disputes. Whenever a customer disputes a transaction, the issuing bank handles the dispute.
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