What Is an Issuing Bank? Is It Important for Merchants? [2023]

Does your business need an issuing bank to accept online payments? Set up your company for success with this guide to the players in ecommerce transactions.

An online purchase might seem simple. Your customer enters their card details, you receive the payment, and provide the product or service. Under the surface, however, each ecommerce transaction is a complex process with several critical components. 

The issuing bank, one key piece of the puzzle, issues credit and debit cards to customers. When someone enters their payment information, the issuing bank transmits payment information to your bank, which is known as the acquiring bank. Knowing how these institutions work together can help you operate your business efficiently.


What Is an Issuing Bank?

An issuing bank is any financial institution that issues credit or debit cards to customers. These banks belong to the large credit networks, such as Mastercard and Visa. Most banks serve as both acquiring and issuing banks. 

In addition to issuing credit and debit cards, common services offered by issuing banks include:

  • Credit card activation and renewal
  • Data security measures
  • Fraud protection and recovery services
  • Credit limit review when customers apply for an increase
  • Payment dashboards that connect customers with their accounts through websites and apps
  • Credit card rewards programs, including incentives like cash back on purchases

Since issuing banks pay for the customer's purchase upfront, they shoulder financial risk. Those with lower credit scores pay higher interest rates because they're associated with a higher risk of payment default. They may be unable to qualify for credit cards with some issuing banks. 

What's the Role of an Issuing Bank in Payment Processing?

In simple terms, the issuing bank connects the customer with the payment processing system so your transaction can happen. When the customer scans their card at a register or makes an online purchase on your website, the acquiring bank initiates the transaction through the payment processor. 

Next, the payment processor connects your bank with the issuing bank. It will either approve or decline the purchase depending on the funds in or credit limit of the customer's account. 

For an approval, the issuing bank sends the transaction amount to the acquiring bank through the payment processor. In exchange for the risk of paying upfront, the issuing bank charges a fee for each transaction (usually a percentage of the total). This covers costs in case the customer doesn't pay their credit card bill.

When a transaction is declined, the acquiring bank instead receives a message from the issuing bank with the reason for the denial. The issuing bank also resolves complaints on behalf of the customer by reaching out to the acquiring bank to gather more information. If it finds a charge fraudulent, the issuing bank refunds the customer's money and you'll have to pay a chargeback fee.

Issuing Bank vs. Acquiring Bank: What's the Difference?

In general, the merchant's bank is the acquiring bank and the customer's bank is the issuing bank. The acquiring bank receives payment for the purchase while the issuing bank sends payment. Many banks offer both acquiring and issuing services. As a small business owner, you don't have a direct relationship with the issuing bank, only with the acquiring bank.

Does a Merchant Need an Issuing Bank? 

Your small business doesn't need an issuing bank. Instead, you need to enroll with an acquiring bank to accept and process payments as a merchant. Issuing banks handle the customer's part of the purchase.

If you use a payment service provider like Pay.com, you won’t have to open your own merchant account. We provide a full payment infrastructure that takes care of everything for you. It’s easy to set up, too! Click here to find out more.

How Can Your Business Accept Payments? 

Your small business needs to work with an acquiring bank and a payment processor to accept payments. Some processors offer banking services if you prefer a one-stop solution. For example, Pay.com provides everything you need to accept credit and debit cards online, including maximum security for sensitive financial data.

The Bottom Line 

As a business owner, you'll work with the acquiring bank to get paid for credit card transactions. The customer's bank is called the issuing bank. Both have specific roles in the payment process. Responsibilities of the issuing bank including approving or declining payments, transmitting funds to the acquiring bank, and resolving customer payment issues.

We know keeping track of all these moving parts can be time-consuming. For a stress-free ecommerce experience from beginning to end, partner with Pay.com. We've got the solutions to streamline each transaction from the customer through the issuing bank through completion and receipt of funds.


What is an example of an issuing bank?

Examples of issuing banks include Bank of America, Wells Fargo, Chase and Capital One. More than 100,000 global institutions act as issuing banks, and most major banks offer this service.

Is Visa an issuing bank?

Visa is a global credit card network, not an issuing bank. Like MasterCard, it provides credit and debit cards to consumers through issuing banks. The other major credit card networks, Discover and American Express, also serve as issuing banks.

What's the best way to accept credit card payments online?

When you work with Pay.com, you benefit from an affordable, easy-to-use payment solution. We handle the entire transaction from your end, and you can easily keep track of all your payments from your Pay Dashboard. It’s easy to get started - click here to find out more!

Can I accept online payments without a website?

You don't need a website to accept online payments when you use Pay.com. You can send clients Pay Requests directly from your Pay Dashboard. Each text message or email invoice you send through our platform has a payment link that takes the customer right to your menu of selected payment methods.

Meet the author
Andrea Miller
Andrea Miller has been a writer and editor for more than two decades. Specializing in business and finance, she has written for some of the major websites in the financial sector. Outside of work, she spends most of her time with her family and enjoys hiking, yoga, and reading.
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