What is an Issuing Bank?

Malcolm Tatum

An issuing bank is a financial institution that offers payment cards to consumers that are connected with some type of card association. These may be credit cards or debit cards, and provide consumers with the benefit of being able to use the financial instruments in a variety of settings. As part of this process, the issuing bank also assumes the greatest degree of risk for each consumer that receives a payment card, in that the bank will be responsible for settling any debts incurred by the card holder in the event he or she defaults on the outstanding balance.

An issuing bank offers consumers credit and debit cards.
An issuing bank offers consumers credit and debit cards.

One of the functions of an issuing bank is to offer credit card services to its clients. As part of the process, the bank must evaluate the credit-worthiness of the client, based on the criteria set by the card association and the bank's own internal qualifications and standards. For clients who are found to be credit-worthy, the bank will assign a specific credit limit to the card. That limit can be reviewed from time to time and either increased or decreased depending on the payment history of the customer as well as other changes that may impact the risk level associated with continuing to service the account.

In many instances, the payment card that is provided by an issuing bank will be co-branded. This means that along with the brand of credit card provided through the card association, the name of the bank will also be included on the card. Using this approach allows the issuing bank to promote its connection with the brand, a strategy that can sometimes result in generating greater interest among consumers. At the same time, the co-branding approach provides the bank with additional opportunities to make the general public more aware of the bank and its range of services above and beyond the connection with the card association, a move that may also help to attract new customers.

An issuing bank does take on some degree of liability with each payment card issued. In the event that the cardholder should default on an outstanding balance, the issuing bank must take the steps necessary to recover the debt and reduce the loss as much as possible. When the card involved is a credit card, the issuing bank will share a portion of the liability with the acquiring bank, or the bank that initiated the credit payments on behalf of its client, but the majority of the responsibility still rests with the bank that originally issued the card.

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