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An issuing bank is a
bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
that offers card association branded
payment card Payment cards are part of a payment system issued by financial institutions, such as a bank, to a customer that enables its owner (the cardholder) to access the funds in the customer's designated bank accounts, or through a credit account and ...
s directly to
consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
s, such as credit cards, debit cards, contactless devices such as key fobs as well as prepaid cards. The name is derived from the practice of issuing cards to a consumer.


Details

An issuing bank (also called an issuer) is part of the 4-party model of payments. It is the bank of the consumer (also called a cardholder) and is responsible for paying the merchant's bank (called an
Acquiring Bank An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing bank ...
or Acquirer) for the goods and services the consumer purchases. It issues the payment card and holds the account with the consumer (such as a credit card account or checking account for a debit card). The parties in the 4-party model are: # Consumer (also called a cardholder): Makes purchases and promises to pay the Issuing Bank for them. # Issuing Bank (also called an Issuer): The consumer's bank. Transfers money for purchases to the Acquiring Bank. Is liable for purchases made by the consumer if the consumer does not pay. # Acquiring Bank (also called an Acquirer): The merchant's bank. Accepts money for purchases. Is liable for charges made by the merchant if it does not provide goods or services purchased. # Merchant: Sells goods and services and accepts credit, debit or prepaid cards as promise for payment. The issuing bank assumes the primary liability for the consumer's capacity to pay off debts they incur with their card. In the case of credit cards, this includes extending credit to make these purchases. In the case of debit cards, this includes debiting funds from bank accounts, such as checking accounts. In the case of
credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
s, the issuing bank extends a
line of credit A line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A line of credit takes s ...
to the consumer. Liability for non-payment is then shared by the issuing bank and the
acquiring bank An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing bank ...
, according to rules established by the card association brand.


Key types of risk for issuing banks

There are a few main types of risk for issuing banks, primarily regarding whether the approved transaction(s) will be paid for by a legitimate cardholder. # Account fraud: This is when an account is opened by a fictional person or with a stolen identity. The cardholder makes many purchases but then disappears without paying. # Transaction fraud: This is when a fraudulent charge is made to a legitimate account, such as with credit card fraud via a stolen card number. With the rollout of EMV chip cards in the USA, much of this fraud has moved to online transactions. Since the cardholder is not responsible for fraudulent charges, the issuer is responsible to pay for the charges. #
Credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
: when extending credit (or in the case of debit cards, overdraft privileges), an issuer must be able to assess the likelihood of being repaid the amount of credit extended. As such, credit limit assignment and payment delinquency forecasts are critical to their profitability.


Statistics

As of December 31, 2017, there were 20.48 billion credit, debit, and prepaid cards in circulation worldwide. In 2018, there were 6.958 billion payment cards, including 1.122 billion credit cards, in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
.


See also

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Acquiring bank An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing bank ...


References

{{DEFAULTSORT:Issuing Bank Banking terms Merchant services Payment systems Banks