What Is an Issuing Bank?
The issuing bank, as the term goes, is a bank that issues credit and debit cards to consumers. Typically, these are major commercial banks. However, what’s the role of an issuing bank in the payment process and what are its responsibilities?
An issuing bank, also known as issuer, is a bank or financial institution that offers payment cards to consumers on behalf of the card networks, such as Visa, MasterCard or American Express. The issuing bank extends a line of credit to consumers and is responsible for providing the financial backing for the transactions made with the card. They assume responsibility for cardholder’s ability to pay off their debt accumulated with the credit card or line of credit.
The bank is also in charge of the consumer’s financial information and account data. What’s more, they offer necessary card maintenance, including card renewal, card limit setting, suspension, blockage and card activation.
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The issuer is also one of the parties involved in the online payment process (Also read: Online payments in a nutshell — A guide for beginners). When a customer makes a purchase, the money is transferred from the issuing bank to the acquirer.
We can say that the issuing bank serves as a middleman between the acquiring bank or card network and the cardholder, by going into contract with the owner of the card on the account terms and repayment credit card transactions. The data sent by the issuing bank to the card network is used to determine whether the customer transaction will be accepted or rejected. In short, if there’s enough balance to cover the costs of the purchase, the issuing bank transmits the approval to the acquiring bank and the sale is completed.
Responsibility of issuing bank
Moreover, the issuing bank assumes liability to pay the debts incurred by their cardholders. In case of non-payment, in accordance with the card network 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, as well as the risk they take, for instance, when the cardholder defaults on their payments.
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