Issuing Credit: How Credit Card Processing Works

FT Contributor  | 

A credit card issuer is a bank or financial institution that provides credit to a consumer or business through a card. In addition to these major institutions, regional banks and local credit unions also issue credit cards to qualified consumers and businesses. When you’re choosing the best credit card for you, it’s important to review what institution issues the credit cards you’re interested in. This determines where the card is accepted and the terms and benefits you may be offered.

Some of the most common credit card issuers include Bank of America, Capital One, Chase, and American Express. When you use a credit card to make a purchase, you’re responsible for paying the credit card issuer and the issuer is responsible for paying the merchant. When you understand the job of a credit card issuer and how to figure out which issuer is responsible for certain types of credit cards, it’s easier to choose the credit card that works best for you.

How Is Credit Issued?

When you apply for a credit card, you’re responsible for providing your financial information and the credit card issuer pulls your credit report. These issuers are interested in your credit and financial health because they’re taking on risk when they issue credit to you.

Your credit history and other qualifications determine the amount of credit available to you and the terms of the card, including the interest rate. Some credit card issuers may also offer rewards programs or other incentives to apply for certain cards. These card issuers work closely with payment processing networks so cardholders can use their cards safely and seamlessly without their personal information being compromised.

Credit Card Payment Processing

Credit card issuers make their money through fees and other charges. If you carry a balance on your credit card and don’t pay it off at the end of the month, the balance may be subject to interest. If you’re late making a payment, you may be charged a late payment fee. If you transfer debt from another source to the card, you may also be charged a balance transfer fee. These fees are also ways the credit card issuer makes a profit from issuing credit.

Additionally, credit card issuers make money through merchants. When you use your credit card, the merchant must pay a merchant payment processing fee that’s usually between 1% and 3% of the transaction. A portion of this fee goes to the credit card issuer and a portion of it goes to the credit card network.

Credit Card Networks

A credit card network, also referred to as a payment processing network, helps process the transactions between you, your credit card issuer, and the merchant. While credit card issuers provide you with the credit card, these credit card networks are actually in charge of processing your purchases and controlling where certain credit cards are accepted.

The networks set the payment processing fees and rates but they can’t control the credit limits or interest rates a credit card issuer offers you. When you swipe your card, a credit card network processes the transaction and takes the processing fee from the merchant. Your transaction may be processed through one of the following credit card networks:

  • Mastercard.
  • American Express.
  • Discover.
  • Visa.

You may notice that these credit card networks are also credit card issuers. When you use one of these four major credit cards, the issuer is also the credit card network. Therefore, the company not only makes money from your fees and interest, but also from payment processing fees.

What’s the Difference Between Credit Card Issuers and Network?

A credit card issuer that isn’t also one of these four major credit card networks cannot process transactions without assistance. Credit card issuers such as Chase, Citibank, or Wells Fargo don’t also own their own credit card networks so they rely on one of the four networks to assist in transaction processing.

The credit card issuer is in charge of:

  • Reviewing your credit card application.
  • Approving you for certain credit limits and other terms.
  • Charging you interest fees, late payment fees, and other charges according to your credit card terms.
  • Providing you with a rewards program or other perks related to your credit card.

However, the credit card issuer isn’t responsible for ensuring you can complete transactions safely and effectively with merchants. The credit card network takes on this responsibility and charges the merchant a processing fee for doing so.

How to Figure Out Who Your Credit Card Issuer Is

If you have a major credit card that’s issued by one of the four credit card networks, you’ll see the institution’s name on the front of your card. In this case, your card issuer will either be Visa, Mastercard, American Express, or Discover.

If your credit card issuer isn’t also one of the four major credit card networks, the front of your card should include the name of another bank, credit union, or financial institution. Keep in mind, the name of the credit card network is also present on the front of the card and shouldn’t be confused with the card issuer’s name.

It’s important to be able to identify the name of your card issuer since it’s the institution you’ll need to contact if you have questions about your bill or you suspect fraudulent transactions on your card. By learning how to figure out who your credit card issuer is and reviewing what the issuer is responsible for, you may better understand how your credit card transactions are processed.


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