Understanding the Role of Credit Card Issuers in Payment Processing

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, so 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
  • Their Role in Credit Card Processing
  • Credit Card Issuers vs. Credit Card Networks
  • Fees Charged by Credit Card Companies
  • Fees Charged by Credit Card Issuers
  • Top 10 Credit Card Issuers
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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?

Whenever a customer makes a payment with their credit card, the process of transferring funds from the shopper’s bank account to the merchant account starts with the credit card issuer.

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.

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. We discuss this in more detail below.

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 a middle person, taking money from the issuer’s bank and putting it into the merchant’s. For their trouble, the credit card networks charge an interchange fee.

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 funds are released from the card issuer and will arrive in your account in a few days. The credit will be reflected immediately in your merchant account. It just takes some time to clear.

Let’s look deeper at the card networks and how they differ:

Visa

Visa is the most popular credit card network in the world. At the end of 2020, there were 798 million Visa cards in circulation. It’s accepted in more than 200 countries and territories.

Mastercard

Mastercard is the world’s widest accepted card network, accepted in over 210 countries and territories worldwide. Although second to Visa in card circulation, there were still 725 million cards globally as of March 2021.

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.

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, according to the Nilson Report in 2020, American Express is accepted at 99% of all places that accept credit cards.

Its global card circulation as of Q1 2021 is 725 million.

Discover

Discover is the most unique in that it is both the issuer and the network for its Discover cards. 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 Fees Do Credit Card Issuers Charge?

Credit card issuers take a slice of every transaction that uses the credit card they have issued. These fees range between 1% and 3%, depending on the type of card, the purchase volume, and the transaction details. In most cases, the issuers split this fee with the payment processing network.

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.

Top 10 Credit Card Issuers in the Industry

There are many credit card issuers in the industry, but the largest credit card issuers in the U.S. with the greatest market share are:

1. American Express

As one of the largest networks and an issuer itself, American Express is the big guy in the credit card issuer world.

Their popular cards include:

  • American Express® Gold Card
  • Blue Cash Preferred® Card from American Express
  • American Express Cash Magnet® Card
  • The Business Platinum Card® from American Express

Amex is popular as they offer a large range of credit cards compared to other issuers. Some let consumers earn cash back, and others offer rewards programs, such as Amex Membership Rewards points.

2. Bank of America

Bank of America is extremely well known in the U.S. It dates back some 240 years and has been offering credit cards since the ’50s. Today, Bank of America offers loans, checking accounts, savings accounts, and other financial products in addition to a good range of credit cards, including secured credit cards for bad credit.

Their popular cards include:

  • Bank of America® Unlimited Cash Rewards credit card
  • Bank of America® Premium Rewards® credit card
  • Bank of America® Customized Cash Rewards credit card
  • Bank of America® Travel Rewards credit card

Bank of America credit cards are popular among existing Bank of America customers. It has a Preferred Rewards program that benefits those who bank with them. When those accounts reach particular balances, they are eligible for boosted credit card rewards, like low interest rates on loans or high interest rates on savings.

3. Barclays

Barclays is a U.K.-based bank that has expanded to offer a range of banking products in the U.S.

Their popular cards include:

  • AAdvantage® Aviator® Red World Elite Mastercard®
  • Hawaiian Airlines® World Elite Mastercard®
  • Emirates Skywards World Elite Mastercard®
  • JetBlue Card

As you can see, the Barclays credit cards are often produced as partnerships with popular travel brands affording extra perks to those who fly or travel regularly.

4. Capital One

Capital One has been around since the ’90s offering various products and financial services. They offer business and personal finance services, like savings accounts, checking accounts, personal loans, and credit cards.

Their popular cards include:

  • Capital One Quicksilver Cash Rewards Credit Card
  • Capital One Venture Rewards Credit Card
  • Capital One Venture X Rewards Credit Card
  • Capital One Spark Cash Plus

Capital One credit cards appeal to various consumers. They have travel credit cards, cash back credit cards, card options for those with fair credit, and even secured credit cards for those with bad credit.

5. Chase

Chase is an established name that’s been around for more than 200 years. It has the largest credit card portfolio of any card issuer in the world and has a physical presence all across the U.S., with more than 4,700+ dotting the country.

Their popular cards include:

  • Chase Freedom Flex℠
  • Chase Sapphire Preferred® Card
  • Chase Freedom Unlimited®
  • Ink Business Preferred® Credit Card

Chase is popular amongst consumers because of its Chase Ultimate Rewards program. Through the scheme, cardholders can redeem their rewards in a variety of ways, including cash back, statement credits, prepaid cards, or travel. This is all offered through a user friend customer portal.

6. Citi

Citi (a.k.a. Citibank) has been operating for more than 200 years. Rivaling Chase for those two centuries, Citi has the second-largest portfolio in the United States, beat only by Chase.

Their popular cards include:

  • Citi Custom Cash℠ Card
  • Citi® Double Cash Card
  • Citi Premier® Card
  • Citi Simplicity® Card

Citi is famed for its high-yield online savings account and one of the most popular cash back credit cards currently on the market today (Citi® Double Cash Card). Their ThankYou Rewards program lets cardholders collect points and exchange them for gift cards, travel, or cash back.

7. Discover

Discover is both a card issuer and a card network, as discussed in detail above. Since starting in retail, it’s expanded to offer business credit cards for large or small businesses and personal credit cards, personal loans, and other online banking products.

Their popular cards include:

  • Discover it® Secured Credit Card
  • Discover it® Cash Back
  • Discover it® Miles
  • Discover it® Student Cash Back

Discover lets consumers get pre-approved for new credit cards without the usual intense inquiry into credit reports. This makes it popular among younger consumers and those working to build credit ratings. They also have no annual fees or foreign transaction fees.

8. Synchrony

Synchrony Bank began in partnership with General Electric, offering credit to consumers for new appliances. Today Synchrony is a financial institution with a range of co-branded credit cards, still aligned quite heavily to the retail sector.

Their popular cards include:

  • PayPal Cashback Mastercard®
  • Sam’s Club® Mastercard®
  • Lowe’s Advantage Card

Synchrony’s cards are mostly co-branded store credit cards that give consumers a longer period to pay off purchases.

9. U.S. Bank

U.S. Bank dates back more than 150 years. It has physical branches all over the country and offers financial products and services to everyone from individuals to businesses and major corporations.

Their popular cards include:

  • S. Bank Cash+® Visa Signature® Card
  • S. Bank Visa® Platinum Card
  • S. Bank Altitude® Reserve Visa Infinite® Credit Card
  • S. Bank Business Cash Rewards World Elite™ Mastercard®

U.S. Bank is not known for its credit cards, but it does offer appealing benefits and rewards that attract those in the know. Its U.S. Bank Visa® Platinum Card, for example, has one of the longest 0% APR offers currently on the market.

10. Wells Fargo

Wells Fargo is another financial institution that has been in the U.S. for more than 150 years. Today they offer personal loans, car loans, mortgage loans, credit cards, and other financial products and services.

Their popular cards include:

  • Wells Fargo Reflect℠ Card
  • Wells Fargo Active Cash® Card
  • com® Rewards Visa® Credit Card
  • Wells Fargo Business Secured Credit Card

Wells Fargo is not one of the most popular, but it does attract a good variety of customers and its secured credit card products for small businesses is quite unique.

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, your merchant account is where you can work to get the best deal. Stax offers membership-based pricing with no cancellation fees or lock-in contracts to ensure you get the best deal with no unwelcome surprises.

Contact us to learn more.

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