WHAT IS CARD ISSUING & HOW DOES IT WORK?

Card issuing is the process by which financial institutions, such as banks or credit card companies, provide customers with a physical or virtual card that allows them to access funds or credit.

In this article, we explore what the card-issuing process is, how it works, and its benefits.  

What is card issuing?

Card issuers, or issuing banks, provide credit and debit cards for cardholders on behalf of major companies like Visa, and Mastercard. They serve as intermediaries, managing accounts and issuing cards. Accessing card schemes, like Mastercard or UnionPay, is complex, requiring regulatory compliance. Joining such schemes demands significant time, resources, and expertise, often exceeding expectations for companies implementing card payment programs.

How does card issuing work?

Card issuing is when a bank gives customers credit or debit cards. These cards let users buy things or get cash from ATMs. It involves intricate systems and regulations.

1. Application: An individual or a business applies for a payment card by applying to a financial institution.
   

2. Underwriting: The bank reviews the application, considering credit score, income, and debt history to decide on card approval or rejection.
   

3. Approval: If the applicant meets the issuer's criteria, the application is approved, and the issuer assigns a credit limit (for credit cards) or loads funds onto the card (for prepaid cards).
   

4. Card Production: Upon approval, the bank issues a physical card with the cardholder's details and branding elements from the issuing institution and card network logos like Visa or Mastercard.
   

5. Activation: The Cardholder receives the card by mail and activates it through a phone call or website provided by the issuer, often needing identity verification and PIN setup.
   

6. Card Usage: An activated card allows purchases within issuer-set limits. Usable at physical terminals or online, depending on card type.
   

7. Billing and Repayment: Cardholders can opt for full payment or minimum payment with interest. Debit cards withdraw from linked accounts; prepaid cards use pre-loaded funds for transactions.
   

8. Account Management: Card issuers provide online account management platforms or mobile apps where cardholders can monitor transactions, check balances, make payments, and manage account settings.
   

9. Customer Support: Issuers offer customer support services to assist cardholders with inquiries, disputes, lost or stolen cards, and other issues related to their cards.
   

10. Security Measures: Issuers employ EMV chips, tokenization, fraud monitoring, and liability protections to secure cardholder data and prevent unauthorized card use.

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What are the benefits of card issuing for payment businesses?

1. Brand Recognition and Loyalty: Issuing branded payment cards enhances your business visibility. It helps to foster your brand in terms of recognition.
   

2. Customized Solutions: Card issuing allows you to customize payment solutions to meet specific customer needs.
   

3. Data Insights for Targeted Marketing: Payment businesses can gain valuable insights into customer behavior by analyzing transaction data which can be leveraged for targeted marketing campaigns.
   

4. Increased Revenue Streams: Beyond transaction fees, card-issuing businesses can generate additional revenue through interest charges, and partnerships with other businesses.
   

5. Global Expansion Opportunities: Issuers use advanced security measures to protect customers and businesses from fraud, minimizing potential losses and enhancing overall security in card transactions.

Card issuers Vs card schemes

CARD ISSUERS: Card issuers are financial institutions or banks that provide credit or debit cards to individuals or businesses. They issue cards, set credit limits, and handle billing and statements. Examples of card issuers include banks like JPMorgan Chase, Citibank, and Wells Fargo.

CARD SCHEMES (CARD NETWORKS): Card schemes set standards for payment card transactions, facilitating information flow among issuers, merchants, and acquirers. Examples include Visa, MasterCard, American Express, and Discover.

The difference between card issuers and card schemes

Feature	Card issuers	Card schemes
Meaning	Financial institutions that issue credit/debit cards to consumers	Networks that process card transactions between merchants, card issuers, and banks
Main function	Assess each customer's credit before issuing cards	Use and enable transactions between card issuers and retailers
Card features	Issuer gaps exist for credit limits, interest rates, and incentive programs.	consistent across all network issuers
Revenue stream	Interest rates, late payment penalties, and balance transfers	Charges to card issuers and retailers for transaction fees
Acceptance	Only retailers having agreements with the issuer can accept cards.	Cards that are accepted everywhere there is a network
For instance	Chase, Citibank, and Wells Fargo	Visa, MasterCard, American Express,

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What is a card scheme?

The primary role of a card scheme is to provide the infrastructure and rules that enable interoperability between different banks and financial institutions. These schemes provide the infrastructure and rules that govern the use of payment cards in various financial transactions. The key components of a card scheme include the card itself, the cardholder, the merchant, the issuer, and the acquirer.

Types of cards used in the banking system:

1. Debit Cards: Debit cards are linked directly to a cardholder's bank account, allowing them to make purchases and withdraw cash. Transactions made with a debit card deduct funds directly from the cardholder's checking or savings account.
   

2. Credit Cards: Credit cards allow cardholders to borrow money from the issuing bank up to a predetermined credit limit to make purchases or withdraw cash. Credit cards offer flexibility in payments and often come with rewards programs and other benefits.
   

3. Prepaid Cards: Prepaid cards are loaded with a specific amount of money by the cardholder or a third party before use. These cards function similarly to debit cards but do not require a bank account.
   

4. Forex Cards: A forex card, also known as a travel card or currency card, is a prepaid card specifically designed for travelers to use while they are abroad. It allows users to load multiple currencies onto a single card.
   

5. ATM Cards: ATM cards, also known as bank cards or cash cards, are primarily used to access automated teller machines (ATMs) for cash withdrawals, account inquiries, and other banking services.
   

Role of card issuers

Card issuers are pivotal in the payment cycle, issuing cards to customers and managing accounts. They perform key functions within the payment lifecycle.

1. Issuing Payment Cards: The primary responsibility of card issuers is to issue debit cards, credit cards, prepaid cards, and other specialized cards.
   

2. Setting Credit Limits: Issuers determine the credit limit which represents the maximum amount a cardholder can borrow on the credit card.
   

3. Managing Cardholder Accounts: Card issuers track transactions, monitor account activity for suspicious behavior and send periodic statements to cardholders.
   

4. Authorization of Transactions: The card issuer is responsible for authorizing the transaction based on factors such as available credit, account status, and security checks.
   

5. Providing Customer Support: Card issuers offer customer support services to assist cardholders with inquiries, report stolen cards, and address issues related to their payment cards.

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Conclusion

As digital transactions grow, card issuing gains importance. Credit/debit cards transform purchasing and generate revenue through fees. Digital issuers simplify complex processes, aiding FinTech in complying with regulations and accessing card schemes.