Know the differences between a credit card processor and a credit card issuer and maximise on the usage of your card.
In the world of credit cards, knowing the difference between some terms is important. A credit card processor and a credit card issuer are terms that sometimes confuse most people. If you can easily differentiate between the two, you’ll be able to comprehend their usage, especially on credit card documents, and avoid any future problems associated with unclear understanding of your card features.
What is a credit card issuer?
To put simply, a credit card issuer is a bank or a financial institution that offers credit cards. The name of the issuer is usually at the back of most credit cards. It is the role of credit card issuer to determine the amount of credit limit available to each cardholder.
When you make a purchase using a credit card, the payment will be sent to the retailer by the financial institution that issued the card. For example, Citi, ANZ, and Bendigo Bank are all credit card issuers. What’s worth mentioning is that the role of credit card issuers is insignificant without the assistance of credit card processors.
The credit card issuers, considered the main party, have the largest responsibility in the process of running the card, and they collect most of the cash. Apart from giving out the card and determining the credit limit of the card, they also ensure cardholders receive monthly statements of their transactions.
What is a credit card processor?
Just like any other payment processor, a credit card processor refers to a company (usually a third-party vendor) whose role is to handle credit card transactions. For example, Visa, MasterCard, American Express, and Discover are all credit card processors. After a bank or a financial institution has issued a credit card, the third-party vendor processes the credit card information to increase the user experience of customers.
When you want to make payment using your credit card, the third-party vendor will check the details received by forwarding them to the bank or financial institution that issued the card for verification. It will also undertake a series of security checks to ascertain the legitimacy of the transaction.
After the third-party vendor has received confirmation of the credit card details, the information will be passed on to the retailer to complete the payment transaction. If the details have not been confirmed, then the transaction will not go through. This entire process takes a few seconds.
How are credit cards issued?
Banks and financial institutions issue thousands of credit cards to their customers each year. The cards are normally given to customers who are responsible and with a trustworthy financial history. You will be issued with a credit card after your application has been successfully reviewed and approved. During the application process, you will be required to provide your personal details, employment status, income, and other information that may be appropriate.
After a bank or a financial institution has finalised the processing of your credit card, it will be sent to you using your confirmed mailing address. On receiving the card, you will need to activate it by dialing some special codes or submitting the required details to a secure site. You will be prompted to respond to some personal questions to ensure your account is not compromised.
As a cardholder, you are expected to manage your account properly and avoid being late with payments. If you exceed your credit limit or fail to submit payments on time, you can attract a penalty and hurt your reputation. Constantly mismanaging credit cards will make you lower your credit worthiness and reduce the possibility of being issued with a credit card in the future.
How does credit card processing work?
The online processing of credit cards takes place through a merchant account opened by a retailer. A merchant account enables online retailers to receive payments of products using credit cards.
When you want to shop for an item online, you will add it to your shopping basket and proceed to checkout where you will provide your mailing address and credit card details before completing your order. Your order will be forwarded to the payment gateway to be processed.
In real time, the payment gateway channels your payment request to the appropriate processor, then directs it to what is referred to as the credit card interchange. Thereafter, your order is routed to the credit card issuer to confirm that your credit card account has enough money to pay for your purchases.
If accepted, the amount you should pay is sent to the merchant account for the retailer to release the purchased items. If the bank or financial institution that issued the card sends back information that the transaction is invalid, you will receive a notification from the retailer to this effect.
Commonly asked questions about credit card processing
How does credit card processing work?
Credit card processing is accomplished through a merchant bank account opened by a retailer.
What is a merchant bank account?
A merchant bank account refers to a bank account opened by a retailer for the purpose of receiving payments made through credit cards. Payments are made either manually or in real time.
What is a payment gateway?
It refers to an application service provider that is integrated with the e-commerce site to enable making payments securely, safely and easily. A payment gateway can be compared directly to a physical point of sale terminal present in the stores of a majority of retail outlets.
Credit card processing and credit card issuing are different and important terminologies used in the credit card industry. Learning their difference is essential if you want to increase the user experience of your credit card.