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.
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. Source
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