In the payment processing ecosystem, numerous organizations make up a piece of the puzzle. Banks, credit unions, card issuers, card networks, payment processors, and payment processing software providers each play a role. Knowing who does what will help you better understand how credit card processing works; this way, you can ensure that you’re accepting payments in the most optimal and cost-effective manner.
In this post, we’ll put the spotlight on credit card issuers and take a closer look at their role in payment processing.
What is a credit card issuer?
If you possess a U.S. credit card, you have dealt with a credit card issuer. The banks, credit unions, etc., extend credit limits to cardholders based on their FICO credit score.
Someone with bad credit will find it hard to get a credit card. Or they will be set a low credit limit until they can improve their rating. Someone with an excellent credit rating may be granted the best credit card offers from all the major credit card networks.
The card issuer is the financial institution supplying the consumer credit card. Banks, credit unions, fintech companies, and various other lending institutions can issue credit cards.
Issuers can set unique rewards programs and perks to entice customers, such as extended warranty, cashback initiatives, and bonus points. That means that if you have a Visa card, your benefits could be different from other Visa cardholders’ benefits.
All card issuers have to adhere to government bureaus and agencies, such as the Consumer Financial Protection Bureau (CFPB), that ensure consumers are treated fairly by banks, lenders, and other financial companies.
What is their role in credit card processing?
When a customer makes a payment, the credit card issuer’s primary role is approving or denying the transaction based on the cardholder’s credit and available funds. The issuer initiates the fund transfer by paying the card network, which ultimately facilitates the money’s route to the merchant’s acquiring bank.
As the merchant, you receive money in your bank from the credit card issuer. They approve the credit to the consumer, so the money comes out of their account to pay whomever the consumer chooses to transact with.
In the payment processing puzzle, the card issuer has the money that merchants receive when their customer pays with a credit card.
However, the final key player is the acquiring bank (or merchant account provider), which holds the merchant account, assumes the financial risk of the transaction (chargebacks), and is the party that actually pays the interchange fee to the Issuer.
Credit card issuers vs. credit card networks
We now understand that the card issuer approves the cardholder’s credit. The funds come from the issuer account to pay the merchant when a cardholder makes a payment. It’s the card issuer’s responsibility to have that money to pay the merchant. However, most card issuers don’t process their own credit card transactions.
When a customer pays with their credit card, the card issuer seldom processes the transaction to move the money from their bank into the merchant’s bank.
This is done by the card networks.
Some examples of the relationship between issuer and network are:
Chase offers the Chase Sapphire Reserve® card. Chase is the issuer, but the card is a Visa card run through the Visa network.
Chase also offers the Chase Freedom Flex℠ card. Chase is the issuer of this card, but Mastercard is the network. Transactions would be processed through the Mastercard network.
Bank of America offers the Bank of America® Unlimited Cash Rewards credit card. The network for that card is Visa. Transactions are processed through Visa’s network.
Discover and American Express are not in these examples as they operate differently. Discover and American Express are unique because they operate on a closed-loop system. This means the company acts as the card issuer, the card network, and the acquirer (the merchant’s bank) all at once. This direct relationship allows them to control the transaction from start to finish.
Credit card networks explained
Every credit card issued links with one of the credit card networks. You can tell which one it is by the logo on the card. Even debit cards connect with these networks.
The largest credit card companies are American Express, Discover, Mastercard, and Visa. Each has its own digital infrastructure to expedite transactions. From the consumer and merchant perspective, this happens in seconds. Behind the scenes, sophisticated technology enables this.
Many financial institutions that issue credit cards don’t have this comprehensive technology in-house. This is why they rely on the credit card networks to facilitate their transactions. The credit card networks act as the middle person. For their service, the networks charge a small assessment fee. However, the largest fee in the system—the interchange fee—is paid by the merchant’s bank (the acquirer) to the issuing bank to cover their costs, risk, and rewards programs.
In practice, it works like this:
Say you own a hairdressing salon. A customer comes in, gets a haircut, and pays for their service. They tap or insert their credit card at the POS terminal. Your payment system automatically sends the transaction information to their card network. No matter which network the card is with (e.g., Visa, Mastercard, etc.), the payment system recognizes this and sends it to the correct one.
The network then sends the transaction information to the customer’s card issuer. Their card issuer decides whether or not to approve the transaction—this happens automatically based on pre-programmed prerequisites. Once approved or declined (which only takes seconds), the card issuer’s system sends the decision to the card network’s system, which, in turn, sends it to your payment system.
Within a few seconds, you see that the transaction is approved. The authorization is granted. The funds are held instantly on the customer’s credit line, and the transaction is reflected immediately in your payment processor’s reporting portal. The funds will then clear and be deposited (settled) into your merchant bank account in a few days.
You should note that the Visa and Mastercard models use a four-party system (issuer, cardholder, merchant, acquirer/processor). American Express and Discover use a two-party system (closed-loop) where they perform all roles except that of the merchant and cardholder.
Let’s look deeper at the card networks and how they differ:
Visa
Visa is the most widely accepted credit card network globally. It is the world leader in both total card circulation and total purchase volume processed, maintaining its dominance over all other card networks.
Mastercard
Mastercard is accepted in over 210 countries and territories worldwide. Although second to Visa in card circulation, there were 1.1 billion Mastercard credit cards in circulation worldwide.
American Express
American Express (a.k.a. Amex) is different from the two above in that it can be both an issuer and a network (closed-loop system).
Consumers can apply directly to Amex for approval for the credit card. That makes them the issuer. When transactions go through, they are also the network processing those transactions.
Amex has long had a reputation for not being accepted everywhere, but as of 2025, American Express is accepted at 99% of all places that accept credit cards.
Discover
Discover, like Amex, is unique in that it is both the issuer and the network for its Discover cards (closed-loop system). It’s smaller in reach than the other network brands, as it’s predominantly U.S.-based. It also doesn’t perform network functions for any other card issuers—only itself.
Introduced initially as a store credit card or cash rewards credit card for the department store Sears, Discover has long been associated with retail and its rewards programs. Today, it is really like any of the other credit card accounts.
What fees do credit card companies charge?
We mentioned above that the networks set the interchange rates. For every transaction through their digital infrastructure, interchange rates get logged and passed on to merchants.
If you’re wondering whether you get around interchange fees when Amex or Discover use themselves to process transactions, the answer is no. Like other networks, American Express and Discover have interchange rates, and those fees are passed onto you, the merchant.
What is the interchange fee (paid to credit card issuers)?
The primary fee the merchant pays that benefits the issuer is the interchange fee. This variable fee, typically ranging between 1% and 3% depending on card type, security, and transaction details), is paid by the merchant’s acquiring bank to the issuing bank for every transaction.
Issuers use the interchange fee to fund their reward and loyalty programs. When a customer uses a premium travel or cashback card, the interchange rate is higher, meaning the merchant pays more. This demonstrates the direct financial influence the card issuer has on the merchant’s profitability for every transaction. Where they really make their money, though, is through the consumers.
The fees to consumers are typically a variety of the following:
- Annual fees: Most credit card issuers will charge consumers an annual fee for the convenience of having that credit card. Those fees are often negligible compared to possible savings through rewards and other perks.
- Late payment fees: All card issuers make the majority of their money on late payment fees. Interest rates are set up and charged when a balance hasn’t been paid within the set timeframe applicable to that card.
- Balance transfer fees: Balance transfers may interest consumers who have accumulated debt on their credit cards. This is a way to combine those debts to pay off just that one card or account. Issuers will charge consumers to complete that balance transfer.
- Foreign transaction fees: When the issuer and network have to calculate currency conversions, foreign transaction fees will be added on top of the exchange fee. This is for the service of having to perform the foreign transaction.
In summary
Credit card issuers play an important role in the credit card ecosystem. But thankfully, they are not a provider that merchants have to deal with directly. Through your payment processing provider, all of these interactions are performed behind the scenes.
Understanding their role helps to understand the fee breakdowns and why these issuers get a cut.
When it comes to reducing your payment processing fees, working with a provider that offers transparent pricing is key. Stax offers a subscription-based model which gives you access to the direct interchange rate (the fee paid to the Issuer) with zero processor markup, ensuring maximum savings and cost clarity.
FAQs about credit issuer
Q: What is a credit card issuer in payment processing?
A credit card issuer is a financial institution like a bank, credit union, fintech company, or other lending entity, that provides credit cards to consumers. They extend credit limits to cardholders based on credit ratings and are responsible for approving transactions, making them a key player in payment processing.
Q: How do credit card issuers affect payment processing?
Credit card issuers play a crucial role in payment processing. When a customer pays with a credit card, the card issuer approves the transaction and initiates the fund transfer from the customer’s bank account to the merchant’s account. Therefore, they control the flow of money in credit card transactions.
Q: What is the difference between credit card issuers and credit card networks?
While credit card issuers are the institutions providing the credit cards, credit card networks like Visa, Mastercard, Discover, and American Express, facilitate the transaction process. They act as a bridge, taking money from the issuer’s bank and putting it into the merchant’s bank account.
Q: What types of fees do credit card issuers charge?
Credit card issuers typically charge a variety of fees from both merchants and consumers. For merchants, these fees range between 1% and 3%, split between the issuer and the payment processing network. On the consumer end, common charges include annual fees, late payment fees, balance transfer fees, and foreign transaction fees.
Q: How can I reduce my payment processing fees?
It is possible to negotiate your payment processing fees with your merchant account provider. Some providers, like Stax, offer membership-based pricing with no cancellation fees or lock-in contracts, providing potential opportunities for more affordable rates.
Q: How do credit card issuers benefit from transaction fees?
Every time a consumer uses a credit card for a transaction, the credit card issuer receives a portion of the processing fees. This revenue, in addition to the various fees charged to cardholders, is a primary source of income for credit card issuers.
Q: What role do government agencies like the Consumer Financial Protection Bureau (CFPB) play in the operations of credit card issuers?
Credit card issuers are regulated by government agencies such as the CFPB. These institutions ensure that consumers are treated fairly by banks, lenders, and other financial companies, and that all operations adhere to the relevant laws and regulations.
