When creating a card program, you need to find a way to connect with the multiple banks and networks involved in the issuing of cards and the processing of every transaction.
That’s where issuer processors come in. These entities are a vital component of the payments system, working in the background to ensure safe and successful transactions between the issuing and acquiring banks.
While larger financial institutions often conduct their own issuer processing, many businesses or issuing banks often don’t have the capabilities to process payments in-house, and so rely on issuer processor companies as a third-party service.
In this article we explore exactly what an issuer processor does and explain how our full-stack issuing product can act as a one-stop shop for all your issuing, processing and card program management needs.
What is issuer processing?
Issuer processing is the collective term for all the activities that make up the management and processing of card payments by an issuer. These include transmitting transaction data, verifying card details, and checking whether a cardholder account has sufficient funds or credit in order to approve payments.
Issuer processing is a vital part of the payments ecosystem, helping customers spend, and merchants take payments with confidence, while abiding with regulation and minimizing risk.
What does an issuer processor do?
An issuer processor is responsible for either declining or approving a debit or credit card transaction on behalf of the card issuer, as well as settling transactions, and maintaining the system of record for cardholder data.
Issuing is composed of three separate entities: the card issuer, the issuing processor, and the card program manager. The card issuer is the cardholder’s bank, while the card program manager maintains relationships with card manufacturers and operates card programs. Essentially, the issuing processor mediates between the merchant and issuer via a card scheme.
Issuer processors can also create cards or single-use card tokens and provide a range of other services including digital wallets, virtual cards, prepaid cards, cryptocurrency services, online banking and voice assistance.
Below, we explain in more detail exactly what an issuer processor does during the payment process and beyond.
When a merchant takes a card payment, the issuer processor checks two things: whether the cardholder has enough funds or credit for the payment, and whether there’s any possibility that the transaction could be fraudulent. If these checks are passed, the issuer processor authorizes the payment. If they aren’t, the payment is declined.
Once a payment is approved, the funds need to be transferred from the issuing bank to the merchant’s bank. The issuer processor confirms authorization of the payment from the card network and then ensures the right amount is deducted from the cardholder's bank and delivered to the correct account.
Ensures transactions are secure and compliant
The issuer processor enables secure transactions through sophisticated fraud detection and prevention, and by ensuring the level of authentication required for the payment meets regulations and is appropriate for the level of risk faced. If it detects anything suspicious about the transaction, it will alert the merchant and the cardholder so that they can attempt to resolve the issue.
The issuer processor also ensures both issuer and networks remain compliant with Payment Card Industry Data Security Standard (PCI DSS), which protects cardholder data and reduces the risk of fraud. This helps to avoid any penalties that would be incurred in the event of a breach.
Manages card issuance
An issuer processor plays a vital role in the issuance of both physical and virtual cards, ensuring they can be quickly created and activated for use by the cardholder.
Provides the system of record
A system of record is the definitive document of all a company’s financial transactions, which is vital when it comes to accounting, tax management, regulatory compliance, and accounts payable and receivable. Issuer processors maintain a system of record on behalf of the issuing bank.
Does Checkout.com offer issuer processing?
Yes, Checkout.com offers issuer processing as part of our new full stack issuing product.
Unlike many other issuers, which often only serve certain parts of the value chain, we act as a one-stop shop, combining full issuing and acquiring in one platform.
That means that, rather than having to establish relationships with multiple providers - which can delay the launch of your card program, increase risk and impact performance - as an issuer and processor, we control the entire value chain. This allows us to fully optimize our product for our customers, from improving authorization rates to facilitating a smooth operational setup.