What is an Issuer Processor Platform and How to Work With One?
March 22, 2023
Issuer processors play a key role in managing the complex workflows involved in electronic payment transactions.
This article covers the primary components of issuer processing, including card management and authorization systems, clearing and settlement, and security and fraud prevention capabilities. It also lays out some of the key criteria to evaluate when selecting an issuer processor to partner with, such as processing speed and volume capacity, and the flexibility to support multiple payment types.
What is an issuer processor?
An issuer processor is a critical component of an electronic payment system, responsible for managing the complex processes involved in the authorization, clearing, and settlement of transactions. It is an entity that connects financial institutions, fintechs, and cardholders in the payment ecosystem, ensuring that transactions are processed accurately and securely.
In addition to their primary role in payment processing, issuer processors may also offer other services, such as card management, reporting and analytics, or dispute and chargeback management, through APIs.
APIs are sets of tools and protocols that allow software components to interact with one another, enabling developers to create applications that can interact with other systems and services. In the financial services industry, issuer processors use APIs to provide card payment processing, fraud detection, and other related services. APIs also facilitate integration between different systems and services, making data and services flow seamlessly within the industry and driving digital innovation.
What is the purpose of an issuing processing platform?
An issuing processing platform facilitates the smooth and secure processing of electronic payment transactions between fintechs, banks, merchants, financial institutions, etc. As a key intermediary in the payment ecosystem, it plays a critical role in managing the complex processes involved in authorization, clearing, and settlement of transactions.
It provides non-financial institutions and financial institutions alike with the tools and infrastructure necessary to manage their cardholder accounts, and manage payment cards, authorize transactions, and settle payments with merchants. Ultimately, the goal of an issuer processor is to provide a reliable and efficient payment processing experience for cardholders, fintechs, merchants, and financial institutions.
What are the benefits of using an issuer processor?
1. Efficient transaction processing
They provide tools and infrastructure necessary to manage cardholder accounts, authorize transactions, and settle payments quickly and efficiently.
2. Improved fraud detection and prevention
They often include advanced fraud detection and prevention measures, such as real-time monitoring, to help detect and prevent fraudulent transactions.
3. Streamlined card management
They can easily manage payment cards, as well as provide cardholders with access to self-service features like balance inquiries and transaction history.
Learn more about issuing virtual cards.
4. Enhanced customer experience
By ensuring fast and reliable transaction processing, they can help you deliver an improved customer experience, which can lead to increased customer loyalty and retention.
5. Cost savings
By leveraging infrastructure and resources, you can often achieve cost savings and efficiencies in payment processing operations.
How payment processing works.
Issuer processing involves managing the complex processes involved in electronic payment transactions. These processes can be broken down into three main components:
Transaction Processing: This entails the initial steps of the payment process, including capturing transaction data, encrypting it for security, and routing it to the appropriate financial institution’s core banking system.
Authorization and Clearing: Once a transaction is received, the payment processor performs an authorization check with the bank issuer to ensure that the cardholder has sufficient funds to cover the transaction. If the transaction is authorized, the issuer processor sends the transaction data to the appropriate payment network for clearing and settlement.
Settlement: During settlement, the payment network transfers funds from the cardholder's bank to the merchant's bank, typically through the issuer processor. The payment processor verifies that the funds are available, then transfers them to the merchant's bank account. Settlement is typically completed within a few days of the transaction.
Through managing these processes, an issuer processor ensures the smooth and secure processing of electronic payment transactions,and payment settlement with merchants.
What is the difference between an issuer processor and acquirer processor?
An issuer processor is responsible for managing the complex processes involved in the authorization, clearing, and settlement of electronic payment transactions on behalf of financial institutions that issue payment cards to their customers.
On the other hand, an acquirer processor manages electronic payment transactions on behalf of merchants who accept card payments from their customers, facilitating the authorization, clearing, and settlement of these transactions with the respective financial institutions.
In other words, an issuer processor works for the financial institution that issues payment cards, while an acquirer processor works for the merchant that accepts card payments.
What US companies provide issuer processing capabilities?
Galileo Financial Technologies
Galileo is proud to be one of the few issuer processors to be Visa Ready Certified and MasterCard certified. Learn more about what it means to be a Visa Ready Certified Issuer Processor and Payment Gateway Certified with MasterCard.
The key components of card issuer processing.
Several key components work together to ensure the smooth and secure processing of electronic payment transactions. These components include:
Card Management System: This system manages the cardholder accounts, including card maintenance, account information, and transaction history.
Authorization System: The authorization system is responsible for checking whether a transaction can be approved based on factors such as available funds, credit limits, and fraud risk.
Clearing and Settlement System: The clearing and settlement system facilitates the movement of funds between financial institutions, ensuring that merchants receive payment for approved transactions and that funds are properly debited from cardholder accounts.
Fraud Detection and Prevention: Fraud detection and prevention tools are crucial components of issuer processing, providing real-time monitoring and analysis of transaction data to identify potential fraud risks and prevent fraudulent transactions from being approved.
Together, these components provide the infrastructure and tools necessary to manage electronic payment transactions, ensuring that financial institutions can provide fast, reliable, and secure payment processing services to their customers.
A few payment definitions.
The Transaction Flow refers to the path an authorization request takes when a cardholder initiates a payment for goods or services.
Issuing Processors, such as Galileo, manage transactions activity on behalf of the issuing bank (i.e., the Issuer) as part of the transaction flow.
The Acquirer, also known as the acquiring or Merchant bank, is the bank/financial institution that provides merchants the tools (e.g., card readers) and facilitates to accept and process card-based payments as part of the transaction flow.
A Merchant is any business that accepts card payments in exchange for goods or services.
The Acquirer Processor manages activity on behalf of the Merchant’s bank (i.e., the Acquirer) as part of the transaction flow. Acquirer Processors facilitate funds transfers and manage Merchant accounts.
The Payment Networks, also known as card associations or schemes, enable card-based payments by providing the rails on which transaction communications flow. The major U.S. Payment Networks are American Express, Discover, Mastercard and Visa. There are separate Payment Netowks for PIN (personal identification number) ATM and Point of Sale (POS) transactions. Examples include Visa Plus and Cirrus for ATM PIN networks, and Maestro and Interlink for POS PIN networks. Payment Networks set the rules and requirements for cards on their networks such as the interchange fee on transactions.
A Cardholder is a person who uses credit, debit or prepaid cards to purchase goods or services.
The Issuer, also known as the issuing bank, works with a card payment network to create a credit or debit card offering, i.e., the card used by the Cardholder for the purchase as part of the transaction flow.
What is an example of an issuer processor in a transaction flow?
The Cardholder, Sarah, dips her card to make a purchase at Java Dream, the Merchant.
The card reader sends an authorization request to the Acquirer.
The Acquirer sends the authorization request on to its Acquirer Processor.
The Acquirer Processor sends the authorization request to the correct Payment Network.
The Payment Network sends the authorization request to the correct Issuer Processor.
The Issuer Processor approves or declines the request and sends an approved or declined message back to the card reader (POS terminal) via the Payment Network and Acquirer Processor.
How to select the right issuer processor.
Selecting an issuer processor requires careful consideration of several factors to ensure that the chosen processor meets the needs of your company. These criteria include transaction volume, processing speed, security features, support for multiple payment types and networks, and cost.
The selection process typically involves the following steps:
Considerations: Key considerations include transaction volume, processing speed, security features, support for multiple payment types and networks, and cost.
Request for proposal: To help evaluate, you may issue a request for proposal (RFP) that outlines your program’s specific needs and requirements. The RFP will typically request detailed information about the issuer processor's services, infrastructure, and pricing.
Evaluation and selection: Once responses to the RFP are received, the financial institution will evaluate the proposals and select a shortlist. The shortlisted processors will be evaluated based on criteria such as their ability to meet the financial institution's requirements, their technical capabilities, and their pricing structure. A final selection will be made based on a combination of these factors.
By carefully considering your needs and evaluating potential issuer processors, you can select a processor that meets your specific requirements and provides the necessary infrastructure and tools to support your payment processing operations.
What is the future of issuer processing?
As electronic payments continue to grow in popularity, payment card issuers will play an increasingly important role in supporting the secure and efficient processing of transactions.
Future developments may include the use of advanced analytics and machine learning to enhance fraud detection and prevention, the integration of new payment types and networks, and the adoption of real-time payments to provide faster and more convenient payment processing services.
Advances in payment processing technology and capabilities also opens the door to a host of other product offerings such as secured credit, personal loans, buy now, pay later (BNPL) and rewards for financial institutions and non-financial brands to adopt.
As the industry continues to evolve, issuer processors will need to remain agile and adaptable in order to meet the changing needs of financial institutions and consumers alike.
Issuer processing plays a crucial role in electronic payment processing, providing financial institutions with the tools and infrastructure necessary to manage cardholder accounts, authorize transactions, and settle payments quickly and efficiently.
Through managing the complex processes involved in electronic payments, an issuer processor ensures the smooth and secure processing of transactions, helping to enhance customer experience, streamline card management, and achieve cost savings.
To learn more about how Galileo can assist you, let’s talk.
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