What Is An Issuer Processor?

What is an Issuer Processor?

The issuer processor is a crucial cog in making and receiving payments, but can sometimes be forgotten as it works invisibly in the backend and isn’t customer-facing.

In simple terms, an issuer processor connects an issuer – which is usually a bank, fintech or payment firm – directly with the networks to provide the systems of record, manage the issuance of cards, authorise transactions, and communicate with settlement entities.

The differences between an issuer processor and an acquirer processor

The payments space consists of several different components and service providers, including issuers, acquirers, and much more.

An issuer processor (which is a type of payment processor) connects payment card issuers with a card-issuing bank and scheme networks to manage card issuance, authorise transactions, provide a system of record, and communicate with settlement entities.

It acts as a mediator between the merchant via the card scheme and the issuer or financial institution.

The acquirer processor, however, sits on the other side of the process. It provides the link between the merchant, the card network and the acquirer (sometimes known as the acquiring or merchant bank). It processes the payments from the merchant, through the acquirer and then the card network to ensure the card issuer authorises and settles the transaction.

What does an issuer processor do?

Manages card issuance

An issuer processor helps to manage the issuance of cards, meaning that a physical or virtual banking card can be issued and activated for use.

This helps to ensure that there is no delay in card payments being made and allows the cardholders to spend as soon as they receive it.

Authorises, settles, and secures transactions

Authorises

The issuer processor has the responsibility to allow transactions to happen or not, based on whether the customer has funds available and whether there is evidence to suggest that the transaction is fraudulent. A request is made to the issuing bank for authorisation.

Settles

Funds need to make their way from the issuer to the merchant – that’s where the issuer processor fits in. They make sure that the funds are deducted from the right account.

Secures

The issuer processor is key for detecting fraud and ensures the right authentication is in place depending on the demands of regulation.

For example, if you receive a call or text message from your card issuer or fintech during purchase, it may be because the issuer processor detected something wrong with the transaction.

Ensures PCI Compliance

The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard. It applies to institutions involved in processing card information, storing card information and transmitting payments.

Along with securing the transactions, issuer processors ensure both the issuer and the networks (card and bank) are PCI compliant and following the data governance rules.

In the absence of such protection, the company could face data breaches. Besides these, there may also be penalties or losses for the business.

Provides a system of record

The issuer processor provides a system of record on behalf of the issuing bank, which includes a ledger for cardholder data.

Accepts Card Payments

An issuer processor helps make accepting card payments much easier and more efficient. They process the transaction with ease, whilst delivering the service in a matter of seconds – sending the necessary information back to the acquirer processor via an authorisation message, which is passed on to the acquirer itself and then the merchant’s account.

Examples of issuer processors

With the exponential growth of fintech, the number of providers in the issuing space has grown in order to specialise on and cater to increasing types of products being brought to market. 

In the Issuer Processing space in Europe, key players include Carta Worldwide, Paymentology, Global Processing Services, Tribe Payments, and Marqeta.

To understand the full card-issuing ecosystem and the partners you might need to know about when creating your program, read our card-issuing ecosystem explained blog post.

How to choose the right issuer processor

To ensure that you choose the right processor, you have to consider solutions that can help you rapidly go to market, but not at the cost of being generic.

You have to think long-term and examine the issuer processors on offer that can give you the ability to grow your userbase and generate revenue through adoption.

There are three main points to be looking for:

Unlock the power of customisation

You should also look for solutions that let you configure your transaction configurations in a very granular way (i.e. personalise your cards to allow transactions at a specific merchant or merchant categories or to enable transactions over a given period of time at certain merchants).

Other issuer processors might be able to authorize transactions and decisions in real-time. Whilst you may not need this feature for scenarios where your card programme is designed to check a series of predetermined parameters to authorise transactions, it’s something worth considering if you want to create a unique experience.

Lower development time and effort

With the latest innovations in payments, integrating with the newest card-related technologies can be critical to your success.

When card networks release new features, your processor needs to quickly support them. By using a modern processor that remains on the pulse, your customers get the most forward-thinking offerings in payments, and you, as a result, gain higher card adoption and a competitive edge.

Build a path to a global scale

To meet your customer’s growing demands, your issuer processor will need to have a modern architecture that can withstand significant volumes.

Today, they are typically built with a combination of on-prem data centers and on-cloud hosts. This matters a great deal as it enables you to grow your customer and user base whilst continuing to maintain a highly performant system. Carta Worldwide is currently in the process of working with both physical data centers and with cloud hosting.

With that expansion, you will have to deal with different technologies, different integrations, and different processes as you move into other territories. Ensure that you select a processor that has built global integrations to reduce your time and effort in expanding your programs.

If you’d like additional guidance, we’ve written a handy article detailing the five things to consider when selecting an issuer processor.

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