Increases in mobile payment use, cryptocurrency, and many other factors have changed the function of issuing in the payments industry. Thanks to an industry that continues to move farther away from physical prepaid and credit cards, issuing is move full-speed into the acquiring arena.
Issuing vs. Acquiring
Issuing and acquiring banks are the underwriters in the payments landscape and part of the transaction flow when information is being sent for authentication and authorization.
A cardholder’s bank, which also is known as the issuer, is the underwriter for a consumer. A shopper gains access to a line of credit through a credit or debit card brand, like Visa or MasterCard. During a transaction, an issuer confirms an account holder’s identity, verifies that there are funds in the account to cover the purchase, and authorizes the transaction.
A merchant’s bank or an acquirer is the financial institution that underwrites on behalf of a merchant. The merchant bank manages a company’s business account and provides it with reconciliation tools. Acquirers either process transactions or outsource these services to third parties.
The Migration of Issuing into Acquiring
To operate as an issuer, it needs a money transmitter licenses from its state and a registration with the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN). The process is lengthy and costly.
To deal with this, financial technology companies use real-time card issuing to conveniently facilitate outgoing payments. Using this approach, alternative providers and fintech area are able to issue virtual account numbers (VANs) without getting licenses and registrations.
The Importance of VANs and how they work
VANs comprise the same 16-digit numbers that can be found on tangible credit and debit cards. They function the same credit or debit cards but do not require the actual cards. An issuer issues authorizations and card balances, which enable a cardholder to spend with the VAN. The beauty of VAN is that it can be uploaded to a digital wallets and enable NFC payments, which are very secure, from a mobile device.
Currently, use ISO (independent sales organization) program managers to operate issuing programs. Acting as a wholesale ISO, it looks for new cardholders. Also, it partners with a processor to:
- Handle card issuing data
- Make sure cards are funded
- Oversee card load transactions and suspicious activity
- Oversee compliance and security
These program managers guarantee to the issuing banks that cards will be funded and provide cardholders with quality customer support.
Independent Sales Organizations Should Partner with Issuers
As the industry evolves, ISOs may want to connect with issuing ISOs. Since ISOs typically offer services related to payment receipt, partnering with a issuing program manager may allow them to also to handle outgoing payments to suppliers.
Payment services providers often have extra technology products that are perfect for acceptance of VANs since most of their transactions are contactless.
How to Get in on the Profits
The interchange is a fixed cost to acquirers, but is revenue for an issuer. Card-issuing ISOs get the best of both worlds. Entering this type of program can allow an ISO to collect monthly or other fees. As the market blooms, acquiring ISOs should consider helping businesses with outgoing payments so they can build revenue sources.
Issuing is pushing into the acquiring industry. It makes sense for issuers and acquirers to keep up with the trends and move forward accordingly.
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