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What’s the difference between the credit card issuer and the network?
It is a relatively common mistake for someone new to credit to assume that a credit card network such as Visa or MasterCard is also the credit card issuer. This is not the case. A credit card network is merely the company that processes the transactions — facilitating the transfer of funds for your purchase from your credit account at the issuing bank to the seller’s account. Visa and MasterCard are the two most widely used networks. This being the case, many banks want to issue their cards, since they are widely accepted. Credit card networks make it possible for banks to participate in the commerce that comes from credit cards without having to set up independent payment processing units of their own.
What is a Credit Card Issuer?
When you get a bank credit card, the issuer is the institution that you get it from such as Capital One, Citi or your local credit union. The credit card issuer belongs to the credit card network. It’s like a membership. The issuer receives interest payments on the debt, while the credit card network, which processes the transaction, receives a percentage of the sale from the store.
When you make your monthly payments on your account statements, you actually make them to the credit card issuer. Your bank credit card is just that — a loan from a specific bank, rather than from the company whose logo is prominently displayed on your card. It is the issuer that assumes the risk if you default on your payment. This arrangement is why MasterCard and Visa are less likely to have problems riding out the financial crisis than some of the credit card issuers.
Two more interesting cases are Discover and American Express. In the cases of these two credit cards, the credit card issuer is also the credit card network. Discover and Amex have their own credit card processing networks. This means that these two companies get the interest from the credit accounts and the transaction fees. However, both Discover and American Express have started allowing other institutions to issue their credit cards, creating a bank credit card system that might help them gain more customers.
