Issuing bank
Also known as: Issuer
The customer's bank that issued their card and approves or declines the payment.
The issuing bank is the institution that issued the customer's credit or debit card. During a transaction it decides whether to authorize the payment based on available funds and fraud checks, and it ultimately bears the cost of interchange. Chargebacks are filed through the issuer.
How it works
You never sign anything with an issuer, and yet the issuer sets two of your biggest numbers: what a sale costs you and how often a sale fails. Interchange is paid to them, so the same basket on a premium rewards card or a corporate card costs you more than it does on a standard debit card. Their fraud models produce the false declines too. The fix for those is richer data on each request, not blind retries of a card that has already been refused.
The authorization itself takes under two seconds. In that time the issuer asks whether the card is live, whether there is credit or balance available, whether the address and security code match, and whether the pattern looks like fraud. Then it answers, with an approval or a numbered decline code. An approval puts a hold on the funds, and the settled amount lands on the cardholder's statement a day or two later.
The part that catches merchants out is who judges a chargeback. Your processor only forwards the evidence. The issuing bank decides the first round, and it has already heard the cardholder's version before it ever sees yours. Prevention is worth more than paperwork here: a billing descriptor customers recognise, a refund policy they can find, and support that answers quickly will stop more losses than a well argued representment recovers after the fact.
Worked example
Roughly $4.30 of a $200 furniture sale goes to the customer's bank when she pays on a premium rewards credit card. Her issuer approves in about a second and holds $200 against her credit line. Interchange on a card like that commonly runs a little over 2% plus a fixed few cents, which is where the $4.30 comes from. Put the same sale on a regulated debit card and it costs you well under a dollar.
Frequently asked questions
- What is the difference between an issuing bank and an acquiring bank?
- The issuing bank is the customer's side of the transaction and the acquiring bank is yours. The issuer gave the cardholder their card, approves or declines each payment, and receives the interchange fee. The acquirer holds your merchant account, takes in the settled funds and pays you. Every card transaction has one of each, passing messages to one another through the card network.
- Can I contact a customer's issuing bank about a chargeback?
- There is no channel for it. Issuers do not take evidence directly from merchants, so your representment goes to your processor or acquirer and is passed up through the card network. The customer, though, you can contact. A dispute the cardholder withdraws is far easier to stop than one you have to fight on paper.
- Why does an issuing bank decline a card that has money on it?
- Most of those declines are fraud rules, not empty accounts. Issuers score every request on location, merchant category, amount and how the card has been used lately, so a card-not-present sale that looks out of character is refused whatever the balance says. Send the full billing address, the security code and a 3D Secure result with the request and you will see fewer of them.