What is a card issuer and how do they work?

Key takeaways

• A card issuer is a bank or financial institution that issues cards to customers. It approves transactions, establishes terms for card usage, and assumes any financial risks.

• Card issuers evaluate transactions by checking available funds, credit limits, and other criteria to ensure compliance with the cardholder’s account settings and financial boundaries.

• Card issuers sometimes work with businesses to issue private-label cards, which can strengthen customer loyalty. You can drive repeat business by associating your brand’s reputation with the card’s convenience and benefits.

FIS Worldpay data shows that consumer credit card transaction values surged nearly $800 billion between 2021 and 2022, surpassing US$13 trillion.¹ These numbers reflect growing consumer preference and broad adoption of card payments.

Understanding how card issuers work is critical for businesses if you’re considering issuing your branded card. With this knowledge, you can make informed decisions about your card issuer.

In this article, learn what a card issuer is, how it works, what its benefits are, and how to issue your cards with Airwallex.

What is a card issuer?

A card issuer is a financial institution – typically a bank, credit union, or licensed fintech company – that provides payment cards to consumers and businesses. These institutions are often referred to as issuing banks and are responsible for evaluating applicants, approving and issuing cards, setting credit or spending limits, and managing cardholder accounts.

Card issuers can offer credit, debit, prepaid, or virtual cards, depending on the type of product and financial relationship. In addition to managing accounts, issuers often take on the financial risk associated with credit card usage, including underwriting and fraud management.

They also play a role in authorizing and settling transactions, working with card networks (e.g., Visa, Mastercard) and payment processors to ensure that funds move between cardholders and merchants. The card issuing process refers to all the steps involved in launching and maintaining a card program, from onboarding and account creation to transaction monitoring and compliance.

How do card issuers work?

Card issuers provide credit and debit cards to cardholders, allowing them to pay for goods and services. The card issuer determines key aspects such as transaction approval, credit limits, and interest rates. Typically, these issuers are banks or financial institutions that partner with card networks (also called card schemes) like Visa and Mastercard. The issuing bank is responsible for underwriting cardholders, setting credit limits, and managing repayment.

Card networks facilitate transaction processing, authorization, and settlement between card issuers, acquirers, and merchants. Some entities, like American Express, operate as both the issuer and the card network, managing the full payment lifecycle. Issuers rely on card networks to route and authorize transactions securely.

Within the overall payment ecosystem, card issuers issue cards, authorize transactions, assume financial risk, and work in conjunction with card networks, payment acquirers, and merchants.

In Canada, issuers must also comply with regulations set by FINTRAC and other federal financial regulators, including anti-money laundering (AML) and Know Your Customer (KYC) requirements.

What are the key functions of card issuers?

Because card issuers manage financial transactions between customers, businesses, and regulatory bodies – and process payments as part of their core functions – they must balance risks for all parties. Card issuers play a critical role in the payment lifecycle, working closely with merchants, acquirers, and payment networks to ensure secure and efficient transactions.

Here’s a closer look at the key functions of card issuers:

Card issuers provide payment card options and manage financial risks

Card issuers provide various payment card options, including credit or debit card products, which may be issued physically or virtually. These cards allow consumers and businesses to make purchases, withdraw cash, or pay online. Traditional issuers manage the full lifecycle of these cards, including issuing physical cards, managing cardholder accounts, and supporting secure transactions.

Debit cards are typically linked to the cardholder’s bank account, or bank accounts, enabling users to spend only the available balance in real time. Credit cards, by contrast, allow cardholders to borrow funds up to a set credit limit, with repayment terms that may include interest, fees, or penalties.

To manage financial risks, card issuers assess each applicant’s credit history, income, and other financial indicators before approving a card. These evaluations help issuers make informed lending decisions and reduce default risk.

Card issuers also set interest rates, determine credit limits, and apply fees such as annual charges, late payment fees, and foreign transaction fees. These measures help issuers balance risk with the flexibility provided by their credit or debit card offerings.

Card issuers review and approve transactions and protect against fraud

When a cardholder initiates a purchase, the card issuer authorizes or declines the transaction based on factors such as available credit, account standing, and security checks. This process ensures the transaction is legitimate and aligns with the cardholder’s account terms.

To further protect against fraud, card issuers use advanced fraud detection systems that monitor transaction data in real time. These systems flag unusual activity, such as unexpected high-value purchases or foreign transactions, and can trigger alerts or temporarily freeze the card to prevent unauthorized use.

By actively reviewing transactions and using real-time monitoring, card issuers help maintain a secure and reliable payment experience for cardholders and merchants alike.

Card issuers ensure compliance with financial regulations

Card issuers play a ‌role in maintaining the financial system's integrity by adhering to strict regulatory standards. They ensure that all card issuance and transaction processes comply with local and international financial regulations, including anti-money laundering (AML) and Know Your Customer (KYC) requirements. This commitment to compliance safeguards both the issuer and cardholders, fostering trust and transparency within the financial ecosystem. By staying ahead of regulatory changes and implementing robust compliance programs, card issuers help prevent financial crimes and protect the interests of all stakeholders.

Card issuers partner with businesses

Card issuers often collaborate with businesses to offer co-branded or private-label cards, enhancing the payment experience and strengthening brand loyalty. These cards may feature a business’s logo and include exclusive rewards or perks for cardholders, such as discounts or points on purchases.

While the issuer manages the card program, businesses can customize features like spending limits, categories, and rewards to align with their brand and customer incentives. In some cases, issuers work with fintech partners or platforms to provide integrated payment solutions, helping businesses manage transactions more efficiently, especially in areas like expense tracking or issuing employee cards.

What’s the difference between a card issuer and a card network?

Credit card transactions involve two key players: the card issuer and the card network. While card issuers provide payment cards, card networks facilitate communication and transaction processing between merchants and issuers. The four major credit card networks – Visa, Mastercard, American Express, and Discover – are widely accepted globally and play a crucial role in digital payments. Both serve distinct roles in payment processing.

Card issuers issue payment cards, approve applications, set credit limits and interest rates, manage accounts, offer customer support, and take on financial risk for cardholders.

Card networks, meanwhile, handle the authorization, clearing, and settlement of transactions between merchants and issuers. They provide the infrastructure and rules that enable secure global payments and help prevent fraud. While networks don’t charge interchange fees directly, they set the interchange rates that merchants ultimately pay (via the acquirer), along with other network fees.

Some companies, like American Express and Discover, act as both issuer and network – they issue their own cards directly to consumers and don’t rely on third-party banks. By contrast, Visa and Mastercard are networks only and depend on partner banks or fintechs to issue their cards.

Here’s a comparison between card issuers and card networks:

Card issuers and card networks work together to make secure, reliable payment processing possible – each playing a distinct but complementary role in the digital payments ecosystem.

How card issuers and networks work together

Card issuers and payment networks work together to power credit card transactions and ensure a seamless, secure payment experience. While card issuers manage cardholder accounts, issue payment cards, and approve transactions, card networks – also known as payment networks, such as Visa, Mastercard, American Express, and Discover – provide the global payment infrastructure that connects merchants, acquirers, and issuers.

These payment networks route payment data, authorize transactions, and manage the clearing and settlement process. They also set security standards and ensure credit and debit card payments are accepted around the world. This collaboration between card issuers and payment networks is what allows businesses to accept cards globally and cardholders to pay securely anywhere.

Here’s a table explaining how the card issuer and the card network collaborate at key stages of a card transaction.

Types of cards and types of card issuers

Knowing the card type and issuer type is vital for businesses that accept card payments since different card types and issuers may require specific payment gateways or processing systems. Ensuring compatibility can prevent transaction failures.

Here are the most common types of cards and their appeal to cardholders.

Knowing the types of payment cards and their associated card issuers can help your business manage processing costs more effectively. For example, credit card payments often incur higher interchange fees than debit card payments. If your customers primarily use credit cards, it may be worthwhile to collaborate with your payment processor to explore cost-saving strategies, such as interchange optimization or alternative payment methods.

Identifying common card issuers, such as major banks, credit unions, or emerging fintech card issuers, can also enhance fraud detection and help streamline payment processing. Most payment cards display the issuer’s logo on the front or back, along with the card network (Visa, Mastercard, etc.).

Each card includes a Primary Account Number (PAN) – typically 16 digits long – which uniquely identifies the cardholder’s account. The first six to eight digits, known as the Issuer Identification Number (IIN) or Bank Identification Number (BIN), are critical for verifying the card issuer, identifying the card type, and routing transactions correctly during payment processing.

Credit card issuers typically earn revenue through interest charges, annual fees, and interchange fees, while also offering a variety of financial products to cardholders.

The role of card issuers in the payment ecosystem

Card issuing plays a vital role in the digital economy, benefiting both businesses and consumers. For businesses, launching a successful card program helps them support the shift to digital transactions and offer customers a flexible, branded payment option. Card issuers facilitate secure and efficient payment processing while also meeting consumer expectations for convenience, speed, and rewards. Understanding what cardholders value – from seamless user experiences to fraud protection – is key to building a card program that drives adoption and engagement.

Card issuers help you expand your customer base 

Card issuers facilitate seamless transactions across in-store, online, and mobile channels, making it easier for customers to check out from your store. By accepting multiple card types and local payment methods, you can attract a broader range of customers.

Card issuers manage security and fraud protection

Card issuers are critical in helping you reduce risks and protect your bottom line. Card issuers implement security measures, such as encryption, tokenization, and real-time fraud detection systems, to protect merchants and customers from fraud. 

Card issuers offer exclusive benefits and savings

Many card issuers offer rewards, cashback, and loyalty programs, as well as travel perks, that incentivize consumers to use their cards more frequently, which can lead to increased spend. Card issuers sometimes collaborate with merchants to offer special promotions and discounts, which can help you acquire new customers.

Card issuers drive brand loyalty through private-label cards

Card issuers can drive brand loyalty through private-label cards by working with card issuers to roll out a card program that features your logo and brand. You can then offer exclusive benefits and personalized rewards, which can, in turn, strengthen brand recognition and encourage ongoing patronage of your brand.

Benefits of working with a card issuer

Partnering with a card issuer can unlock new growth opportunities for your business. Whether you're looking to launch a private-label or co-branded card or create unique payment experiences for your customers, issuers provide the infrastructure, compliance, and expertise required to bring these programs to life.

Here’s why collaborating with a card issuer is a strategic move:

Enhance customer engagement

Private-label card programs can significantly boost customer engagement. By offering exclusive rewards, discounts, and special offers tailored to your brand and customer base, these incentives make customers feel valued and encourage them to return to your store or website more often. For example, you can offer bonus points for every dollar spent, early access to new products, or special discounts on their birthday. This level of personalization can create a strong emotional connection with your customers, making them more likely to remain loyal to your brand and fostering a sense of brand stickiness.

Increased sales and brand loyalty

Private-label card programs can drive repeat purchases and increase average transaction amounts by providing a convenient and rewarding payment method. Customers with a card associated with your brand are more likely to choose your business over competitors, especially when they can earn rewards or discounts with each purchase. Additionally, the ease of use and the added value of the card can encourage customers to spend more per transaction, resulting in higher overall sales. This consistent engagement, combined with the unique benefits of the card, can significantly improve brand loyalty and product stickiness, making it more challenging for customers to switch to other brands.

Gain data insights

Card issuers can also provide valuable data and analytics on customer spending habits, which can help you refine your marketing strategies and improve customer service. This data can reveal patterns in customer behavior, such as popular products, peak shopping times, and customer preferences, allowing you to make more informed business decisions. Moreover, issuers often share some of the interchange fees and other revenue streams, providing an additional income source for your business. This financial benefit can help offset the costs of running loyalty programs and other marketing initiatives, making the private label card a win-win for you and your customers.

Using these benefits, you can effectively build and maintain a loyal customer base, driving long-term growth and success for your business. Enhanced engagement, increased sales, and valuable data insights can create a strong foundation for brand loyalty and product stickiness, ensuring your customers return.

Launch and issue your own cards effortlessly with Airwallex

If you're a platform seeking to create more value for your users, Airwallex offers a powerful card issuing API solution to develop your own card proposition.

Airwallex Issuing can help you increase your brand awareness and exposure by letting you issue your own branded virtual, physical, and/or digital cards in 40+ countries, even if you aren’t present in the market. As a principal member of Visa, Airwallex Issuing allows your cardholders to transact securely in 170+ currencies worldwide.

Airwallex will partner closely with you to build a card program tailored to your business needs. With Airwallex, flexible monetization options, including transaction and annual fees, provide additional revenue streams. Use real-time insights to optimize your card program to personalize rewards to keep your customers on your app or website.

Sources

1. https://www.worldpay.com/en/global-payments-report