Issuing Bank

What is an issuing bank?

An issuing bank is a bank that gives credit and debit cards to customers through card networks like Visa, Mastercard, and American Express. When a customer makes a purchase, the issuing bank checks if the cardholder has enough funds or credit available before approving or declining the transaction. It also manages fraud protection and takes the risk if the cardholder doesn’t pay their balance. The issuing bank is the middleman between the customer and the broader payment system.

Key points

• Issuing banks give and manage payment cards for customers. They verify transactions, provide fraud protection, and take financial risk if the cardholder doesn’t pay.
• The issuing bank gives cards to customers and approves/declines transactions.
• The acquiring bank works with merchants to accept and process payments.

Issuing bank example

You use a Capital One credit card to buy a new pair of shoes. Then the issuing bank, in this case, is Capital One. They issue the card, manage your account, and approve (or decline) your purchases. When you tap or swipe your card, Capital One checks your available credit to see if you have the funds or credit needed to complete the transaction. If the purchase is made on credit, then Capital One will initially cover the cost of your purchase and pay the merchant on your behalf. You now owe Capital One the amount of the shoes and must repay it based on your credit agreement.

Issuing bank vs. acquiring bank

While an issuing bank gives cards to customers, an acquiring bank (also called a merchant bank) works with businesses to accept card payments.

• Issuing Bank: Gives cards to customers, manages transactions, and collects payments.
• Acquiring Bank: Works with merchants to process payments and deposit funds from sales into their accounts.

If you use a Wells Fargo credit card at a coffee shop, Wells Fargo is the issuing bank. On the other hand, the coffee shop’s payment processor works with an acquiring bank—perhaps Chase—to process the transaction. The acquiring bank ensures the payment reaches the business, while the issuing bank checks if the funds are available on the customer’s end. If everything checks out, the transaction is confirmed, and the customer can be on their way with a delicious coffee.

Issuing and acquiring banks are part of the payment process, working together to make transactions smooth and secure.