An issuing bank is the financial institution that provides a credit or debit card to a cardholder. It is the customer’s bank. When a purchase is made, the issuing bank is responsible for verifying that the customer has sufficient funds or credit available and then approving or declining the transaction. They “issue” the card to the consumer.

Frequently Asked Questions (FAQs)

  • Who decides if a customer’s payment is approved or declined?
    The issuing bank makes the final decision. The payment processor sends them the transaction request, and they check the account for funds, credit limits, and potential fraud flags before sending back an approval or decline message.
  • What is the issuer’s role in a chargeback?
    The issuing bank initiates the chargeback process on behalf of their cardholder. If a customer disputes a charge, their bank will investigate the claim and may reverse the transaction, pulling the funds back from the merchant.
  • How does the issuing bank make money on transactions?
    The issuing bank earns a small fee on every transaction, known as the interchange fee. This fee is paid to them by the acquiring bank and is the largest component of the total transaction fee paid by the merchant.

Related terms: