What is an Issuing Bank?

The Quick Answer: An issuing bank is a financial institution that issues credit or debit cards to consumers. Also known as an “issuer” or “card issuing bank,” these organizations distribute cards on behalf of credit card companies—acting as an intermediary between the card network and consumer while managing those cardholder accounts. 

Issuing banks play a significant role in credit card processing and the payment ecosystem. Any business that currently accepts credit and debit cards or plans to accept card payments has likely run into the term “issuing bank” at some point—yet many businesses get confused with this term.

This in-depth guide contains everything you need to know about card issuers, including their role, types, and differences between them and other players in the payments space. 

What is the Role of an Issuing Bank?

The primary role of an issuing bank is to issue credit and debit cards to consumers on behalf of the credit card networks. Rather than consumers going directly to the credit card companies to obtain a card, they go through a middleman—the issuing bank—to apply for and receive those cards.

When someone uses a credit or debit card to pay for something, it’s the issuing bank’s job to approve or decline the transaction based on available funds or credit of the cardholder’s account. 

For approved transactions, the issuing bank pays the acquiring bank, which ultimately passes those funds to the merchant. The issuing bank releases these funds before the cardholder actually pays for anything. That’s why issuing banks get to set credit limits and interest rates, often issuing lower limits and higher interest to consumers who are more likely to default on payments. 

The issuing bank manages all aspects of the cardholder’s credit or debit account. 

Other common responsibilities of issuing banks include:

• Facilitating credit card rewards programs (like cash back or travel incentives)
• Providing fraud protection services to cardholders
• Acting as the first line of defense when a cardholder disputes a charge, reports fraud, or files a chargeback
• Card activation and renewal services
• Setting credit card interest rates
• Providing credit limits for each cardholder and approving or denying credit increase requests

The easiest way to understand the role of an issuing bank is by looking at how you manage your own personal credit cards. 

If your card is lost or stolen, who do you call? Your issuing bank. If you want to set travel notifications to ensure your card isn’t rejected while you’re abroad, you notify your issuing bank. When you log into your online credit card account to view balances and pay bills, you’re doing it through a platform that’s managed by the issuer. 

What’s the Difference Between Issuing Bank and Card Network?

Card networks maintain the infrastructure and technology that powers payment processing, and they set interchange rates associated with all transactions. They provide everything that’s required for various banks and financial institutions to communicate so credit card payments can be made at businesses worldwide. 

Issuing banks handle the customer-facing side of this communication. They issue cards and manage all of the customer-service-related tasks for the cardholder. 

In most cases, the issuing bank and card network are separate entities. But there are two major exceptions where the card networks double as issuing banks.

American Express and Discover operate as card networks and issuers, extending credit to consumers without going through a third-party bank. 

On the other hand, Visa and Mastercard are just card networks. They rely on issuing banks to issue cards branded with their network name. 

Let’s say you want to apply for a new credit card. You could go directly to Discover and get one there. In this case, Discover acts as the issuer (providing the card and all account-related services) and the network (providing the technology required to process cards branded with the Discover card name). 

But if you want a Visa or Mastercard, you’d go through a third-party issuer—like Bank of America or Wells Fargo. 

If a cardholder wanted to dispute a charge on their Bank of America Visa card, they wouldn’t call Visa, they’d contact Bank of America—the issuing bank.

Nobody is stopping Bank of America or Wells Fargo from becoming a card network. But it would be so challenging to enter this industry and compete with the biggest players. Instead, they can just focus on issuing cards and dealing with customers without worrying about the intricate details on the back end.

Types of Issuing Banks

Credit card issuers can come in all different shapes and sizes. Let’s take a look at some of the most common types of issuing banks so you can better understand how all of this works.

• Commercial Banks — Big banks that provide other financial services, like checking accounts, savings accounts, CDs, and more (Bank of America, Wells Fargo, Chase, etc.)
• Credit Unions — Smaller non-for-profit financial institutions owned by members, also providing other banking services (Navy Federal Credit Union)
• Private Label Issuers — Private label issuers work with card networks to issue their own branded credit cards with additional perks for use of that card at a particular business, and most commonly offered by airlines and hotels (Delta Amex, Hilton Honors, etc.)
• Retailers — Businesses that issue credit cards to be used exclusively at the business that issues them (Macy’s credit card)

Regardless of the type of issuing bank, the issuer’s role remains the same. 

What is a Credit Card Issuer?

A credit card issuer is just an alternative name for an issuing bank. The only minor difference is that this payment terminology refers strictly to credit cards (as opposed to debit cards).

But for the vast majority of purposes, the term “credit card issuer” is synonymous with “issuing bank” and “issuer.”

Issuing Bank vs. Acquiring Bank

An acquiring bank is a special type of bank account that allows merchants to accept credit and debit card payments. For a business to get paid for a card transaction, the money passes from the issuing bank through the acquiring bank before ultimately landing in the business’s checking account. 

Many acquiring banks and acquirers also provide payment processing services, either internally or contracted to a third-party processor. 

The easiest way to understand the difference between issuing banks and issuing banks is that the issuing bank is the cardholder’s bank, and the acquiring bank is the merchant’s bank. 

We have a more in-depth breakdown comparing issuing banks and acquiring banks that covers their complete roles for payment processing. 

Do Merchants Need an Issuing Bank to Accept Credit Card Payments?

No, merchants do not need an issuing bank to accept card payments. 

This is one common misconception in the world of payment processing. Businesses don’t directly interact with the issuing bank in any way to process credit and debit cards. Instead, any communication is handled through the processor and acquiring bank. 

Businesses do need an acquiring bank to accept card payments, but they don’t need an issuing bank.

The only time a business would deal with an issuing bank is to obtain a business credit card. And it’s possible to get a business credit card from the same bank that provides acquiring services. 

For example, a business might use Chase Payments to process payments and then also get a Chase Ink Business card. But these two services are unrelated—as the business credit card has zero impact or role on the merchant’s ability to accept and process card payments. 

Issuing Banks: Summary and Key Takeaways

Navigating the landscape of credit card processing requires a thorough understanding of all the roles and responsibilities of various financial institutions. 

• Issuing banks play a crucial role as intermediaries in the payment ecosystem—bridging the gap between consumers and card networks.
• In addition to issuing cards, they manage accounts, credit limits, interest rates, and tailor financial products to consumer needs.
• Fraud protection, dispute resolution, and rewards programs are all value-added services provided by issuing banks.
• Some issuing banks double as card networks (like Amex and Discover), but most of the time, issuing banks and card networks are separate entities. 
• Merchants do not need an issuing bank to accept credit or debit card payments.

While businesses mostly interact with their acquiring bank, the issuing bank’s role is still important to understand. Reach out and let us know if you have any more questions.