Issuing Bank

What is an issuing bank?

An issuing bank, also known as an issuer, is a financial institution that acts as an intermediary between the cardholder and the payment network, such as Visa and Mastercard.

Some issuing banks also directly issue cards to their customers, whether physical or virtual, but their usual role is managing the financial relationship between the user and the payment network.

Main functions of an issuing bank

Acting as an intermediary entails a series of responsibilities for the issuing bank:

Payment authorization

Before a purchase is completed, the issuer verifies that the customer has sufficient funds or credit and decides whether to approve or decline the transaction.

Transaction settlement

After authorization, the issuing bank facilitates the transfer of funds to the acquiring bank to complete the merchant payment.

Account management

Oversees credit or balance limits, manages the cardholder’s account, and assumes financial responsibility in case of non-payment.

Handling disputes and refunds

Evaluates customer claims, such as chargebacks or refunds, and decides if the funds should be returned. The issuing bank makes the final decision and protects the customer against unauthorized transactions, fraud, or disputes.

Card issuance

As mentioned, some issuing banks also issue their own cards, creating and delivering them in physical or virtual format.

Differences between an issuing bank, an acquiring bank, and the payment network

The issuing bank represents the cardholder, while the acquiring bank is the entity that processes payments for the merchant. In other words, the issuer manages the customer account and authorizes transactions, while the acquirer receives the funds and transfers them to the merchant.

Payment networks, also called brands, act as the infrastructure connecting issuers and acquirers, enabling payments to be executed securely and efficiently worldwide. The network does not directly issue cards or manage cardholder accounts; it facilitates communication and settlement between the participating banks.