The Issuing Bank4 Methods That Issuers Use to Mitigate Fraud & Protect Cardholders

What is a Card Issuer? Who are the Leading Issuers in the US Market?

There are a lot of moving parts in the payments landscape. It can be hard to tell one institution from the next. It just so happens that one of the most important — the issuing bank — is also one of the most frequently mislabeled or misunderstood. 

For the sake of clarity, I’ve put together a detailed overview of issuing banks, as a concept. We’ll also look at the integral role issuers play in daily payment transactions across the globe.

What is an Issuing Bank?

Issuing Bank

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An issuing bank — sometimes called a “card issuer” or simply “issuer” — is a member of a card network that issues credit cards to consumers. They provide banking services to customers, allowing individuals to initiate purchases using payment cards.

In simple terms, an issuing bank is a financial institution that issues credit and debit cards to consumers.

The bank is responsible for assigning credit and debit cards to approved cardholders. That is to say, the issuing bank is a consumer’s credit or debit card issuer and manager.

The credit card issuer acts as a middleman between the consumer and card networks like Visa and Mastercard. The card networks have ultimate control over cards that bear their logo, but these banks do a lot of the legwork. They also take on liability in the event of fraud or misuse.

What Does an Issuing Bank Do?

Issuing banks are financial institutions that partner with card networks to provide (or “issue”) debit and credit cards to cardholders. The bank authorizes transactions, bears financial responsibility for cardholder purchases, and manages relationships with cardholders.

The issuer is responsible for:

• Activating new cards
• Sending new or replacement cards
• Setting and adjusting credit limits (in the case of credit cards)
• Setting spending and withdrawal parameters (in the case of debit cards)
• Investigating and resolving disputes filed by cardholders
• Blocking charges when necessary
• Suspending noncompliant accounts

Above all, issuers are responsible for safeguarding cardholders’ personal and financial information.

Reputable issuing banks invest heavily in developing and deploying robust account security measures that keep sensitive data out of the hands of bad actors. They may also leverage account monitoring systems, which analyze transaction patterns — including type, location, and amount — to detect anomalies that may be indicative of fraud.

How an Issuer Approves a Transaction

How Issuing Banks Differ from Card Networks

Issuers provide payment cards, set credit limits, and make funds available for purchase. In contrast, card networks like Visa or Mastercard are responsible for setting processing rules, determining interchange fees, and facilitating the exchange of information and funds between issuing and acquiring banks.

Some financial institutions, like American Express and Discover, serve as both issuers and card networks. These two companies issue their own cards, but may allow other banks to issue Amex- and Discover-branded cards, and to use the payments infrastructure owned by the respective card brand as well.

This is very uncommon, though. Serving as an issuer and as a credit card network can be incredibly complicated, and requires them to invest in substantial infrastructure. For most, it’s just easier and more efficient to work with a preexisting interbank card network (Visa, Mastercard, etc.).

Card networks fulfill a crucial function of connecting otherwise unconnected banks. Rather than requiring every issuer to transact with another bank on a per-transaction basis, member institutions all use the card network as a universal, impartial middleman. While a bank manages and issues new credit cards, the card network is the party that facilitates transactions between different banks.

Learn more about card networks

Who are the Top Issuing Banks in the US Market?

There are thousands of issuing banks operating globally. Some are international institutions, while others are small-scale, local institutions. Some banks even operate entirely online; Chime is one popular example here.

Below, we’ve listed out some of the most recognizable issuers operating in the US, as ranked by number of active accounts. We’ve also outlined the card brand associated with the institution, and the transaction fees assessed to merchants:

Why Would a Card Issuer Decline a Transaction?

There’s always the risk that a cardholder could accidentally try to debit more than is available in their account at that moment. They may even end up defaulting on their credit card balance. If that happens, the bank that underwrote the cardholder’s account will be on the hook for the money, and it’s up to them to try and recoup the costs from the customer.

Furthermore, banks have certain legal obligations to their customers regarding fraud and other abuse. If an issuer fails to conduct due diligence, and a cardholder becomes a victim of fraud as a result, the bank would be held liable for the losses.

Why Don’t Banks Just Approve Every Transaction?

In the event of fraud or abuse, banks can file chargebacks to undo the transaction and recoup the cardholder’s money. So, why do they apply so many qualifiers to approve a simple transaction?

It makes sense that, whenever cardholders dispute fraudulent or unfamiliar charges, the bank has the incentive to proceed with a chargeback. They could even file a bank chargeback without the cardholder's knowledge in the event of an authorization error.

Banks don't want to file too many chargebacks, though. If they submit an excessive number of invalid disputes, they may end up in an issuer monitoring program.

All told, banks do a lot of work and accept a lot of risk to issue payment cards. That’s why issuers charge a fee for every card transaction. It’s also why, if a bank determines that a customer lacks the income, credit score, or ability to pay down any funds advanced to them, they may be denied an account.

How Issuers Mitigate Fraud & Protect Cardholders

You might say the payment card industry is on the front lines when it comes to fraud.

Issuers are the institutions responsible for facilitating several forms of consumer payments across the globe. As such, they are required to innovate and implement solutions, analyze and tabulate fraud statistics, and lead merchants and consumers toward the safest and most effective payment trends. 

Here is a general overview of the fraud mitigation practices used by issuing banks:

Emerging Trends & Innovations in Issuing Banks

Issuing banks are constantly evolving. Many institutions that issue cards now don’t have physical branches or relationship advisors. Some issuing banks are entirely digital. And, some issuers aren’t even banks at all.

Here are a few of the dominant trends I wanted to spotlight in the payments issuing space:

Need Help?

Does all of this sound a little confusing? Don’t worry: you’re not alone.

Like we said, there are many moving parts to the transaction process. Each player represents a plethora of systems, decisions, and controls. For this reason, the role of the issuing bank is often misunderstood.

This isn’t as much of a concern for cardholders. For merchants, though, complex payment industry rules and processes can be a real nightmare.

Luckily, we can help. Not only do we offer a turnkey solution that handles dispute processes from beginning to end, we also make sure merchants are kept informed of what’s happening along the way.