Issuer Processors: The Backbone of Digital Payment Processing

Table of Contents

1. What is an issuer processor?
2. Why are issuer processors important?
3. How Does an issuer processor work?
4. What is the difference between issuer processors and payment gateways?
5. What are the issuer processor fees?
6. The competitive advantage of digital payments in your supply chain

Key Takeaways

• Issuer Processors are essential for enabling merchants to accept credit and debit card payments.
• They streamline the payment process, benefiting both merchants and cardholders.
• Payment Gateways serve as intermediaries between issuer processors and card networks, ensuring secure transaction approval.
• Digital payments offer a competitive advantage by reducing costs, improving cash flow, and streamlining operations in the supply chain.
  
  

Understanding how digital payments work and the nuances of each aspect of the payment process is essential for businesses navigating today's economy. The issuer processor lies at the heart of digital transactions, allowing merchants to accept credit and debit card payments. But how exactly does the issuer processor work, and why does your business need one? Keep reading to learn more.

What is an Issuer Processor?

An issuer processor is another name for a payment processor or merchant processor. Issuer processors are essential components of the payment cycle. They allow credit card transactions, which are crucial for companies that want to accept digital payments. An issuer processor is a vendor service that allows merchants to accept online payments by managing the logistics of credit and debit card transactions.

Why Are Issuer Processors Important, and Why Does Your Business Need One?

Issuer processors offer critical benefits to both merchants and cardholders. For cardholders, issuer processors make it easier to make payments securely online and allow them to use their credit and debit cards at more locations than they would have been able to use them before.

Additionally, issuer processors help merchants reduce costs and increase sales. Suppose merchants want to accept credit and debit card payments from customers. In that case, they must use an issuer processor or another similar solution to keep up with the current payment landscape.

Alternatively, to issuer processors, merchants can use payment facilitators to accept debit and credit card payments: payment facilitators are required to underwrite and onboard sub-merchants and give them the tools they need to process an online payment. A sub-merchant is similar to a merchant. They act as the payment facilitator’s customers and use the payment facilitator to accept online payments from their customers.

Merchants also have the choice of getting a merchant account. The account allows businesses to process credit and debit card transactions directly. Still, it can be challenging for businesses to get a merchant account, especially if they are new businesses with little track record.

How Does an Issuer Processor Work?

An issuer processor is critical to the credit and debit card payment process. It works completely unnoticed in the background of the payment cycle to ensure that payments go from a customer’s bank account to a business’s bank account.

As soon as a customer makes a purchase with a card, the merchant submits the transaction to the issuer processor so that the issuer processor can help get the payment approved. While end customers don’t have visibility into the full process, a lot goes on to ensure that the funds are moved securely and efficiently from the customer’s account to the business’s account. Here’s what that process looks like in more detail:

1. Customers must give their card information to the merchant (the business they are buying a product or service from). This can occur through a card-present scenario (via a payment terminal in-store) or a card-not-present scenario (via cloud software online).
2. The customer’s payment information is sent to a payment gateway, which securely sends the transaction data to the issuer processor.
3. A card network (such as Visa or Mastercard) will let the issuer processor know whether the payment has been approved. Before approving the payment, the card network needs to authorize that it is not fraudulent and ensure that the customer has enough money in their account to cover the transaction.
4. Once the payment is approved, the issuer processor will contact the bank that issued the customer’s card (also known as the issuer or issuing bank) to finalize the transaction and officially facilitate the funds’ transfer.
5. After this, the card network can transfer the funds to the merchant’s (acquiring) bank.
6. The acquiring bank can finally deposit the funds into the merchant’s account, and the transaction is complete.

What is the Difference Between Issuer Processors and Payment Gateways?

Similarly to how issuer processors act as the middlemen between banks and merchants, payment gateways operate as the middlemen between issuer processors and credit or debit card companies. Payment gateways connect a customer’s account to the merchant account to approve a transaction.

A payment gateway is the gatekeeper of the cardholder’s payment data. It’s a mechanism that reads and transfers payment information from the cardholder’s bank account to the merchant’s bank account by capturing the necessary payment information and ensuring the funds for the desired transfer are available. Without payment gateways, a business could not charge a purchase amount to its customers’ credit cards.

Payment gateways can be used in-store and online. In-store payment gateways use software built into a physical point-of-sale (POS) system, while online payment gateways use cloud-based software to link payers and payees over the Internet.

What are the Issuer Processor Fees?

Issuer processor fees typically cover the cost of processing credit and debit card transactions and can vary depending on the type of transaction. Here are some of the most common types of fees:

1. Transaction Fees: A small fee charged for each transaction processed. This could be a flat rate or a percentage of the transaction amount.
2. Interchange Fees: These are paid to the card-issuing bank and card networks (like Visa or Mastercard) and usually comprise the largest processing cost. They are typically a percentage of the transaction plus a fixed amount.
3. Monthly Fees: Some issuer processors charge a monthly fee to maintain the payment processing service, regardless of the number of transactions.
4. Gateway Fees: If a payment gateway is used with an issuer processor, there may be additional charges for securely transmitting payment data.
5. Authorization Fees: Charged for each authorization request made by the merchant, whether the transaction is approved or declined.
6. Chargeback Fees: If a customer disputes a transaction, a fee is typically associated with the chargeback process.
7. Cross-Border Fees: These are applied when a transaction is made using an international credit or debit card. They cover the additional cost of currency conversion and international processing.
8. PCI Compliance Fees: To meet security standards, some processors charge fees related to Payment Card Industry (PCI) compliance, which helps ensure the secure handling of cardholder information.

The Competitive Advantage of Digital Payments in Your Supply Chain

By adopting a digital payments supply chain, companies can streamline operations, reduce bottlenecks, and gain greater reliability throughout their processes. Whether you’re looking to minimize payment delays or improve cash flow, the strength and efficiency of digital B2B payments offer a competitive advantage that can transform your supply chain.

Issuer processors play an essential role in digital payment processing, making it effortless for businesses to accept credit and debit card payments. Their service is crucial for in-store and online purchases. Plus, as more and more people turn to digital payments, a reliable issuer processor is necessary. Ready to learn more?

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