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The Role of Card Based Payment Instrument Issuer in the Payment Ecosystem

Explore the role of card-based payment instrument issuers, their functions, challenges, and future trends.

Quick Summary


In the ever-evolving payment ecosystem, Card Based Payment Instrument Issuers (CBPIIs) play a crucial role. These entities issue card-based payment instruments that facilitate transactions from accounts held with other payment service providers. Understanding the functions, challenges, and future trends associated with CBPIIs is essential for grasping their impact on both consumers and merchants.

Key Takeaways

  • Card Based Payment Instrument Issuers (CBPIIs) are pivotal in facilitating transactions by issuing card-based payment instruments.
  • CBPIIs interact with various players in the payment ecosystem, including cardholders, merchants, acquirers, and payment processors.
  • The authorization and settlement process is a two-sided transaction involving the issuer, acquirer, and card schema.
  • Security concerns, regulatory compliance, and technological advancements are significant challenges faced by CBPIIs.
  • Emerging technologies and open banking are shaping the future of card-based payments, potentially leading to a trend towards a cardless world.

Understanding Card Based Payment Instrument Issuers

Card Based Payment Instrument Issuers (CBPIIs) play a crucial role in the payment ecosystem. They are responsible for issuing card-based payment instruments that can be used to initiate payment transactions from a payment account held with another payment service provider. Understanding credit card and payment processing is the first step in deciding who you will partner with. Our guide will help you understand how to accept card payments effectively.

Types of Card Based Payment Instruments

Credit Cards

Credit cards are a type of payment card that allows cardholders to borrow funds from a pre-approved limit to pay for goods and services. These borrowed funds must be repaid with interest. Credit cards are widely used due to their convenience and the ability to build credit history.

Debit Cards

Debit cards are linked directly to the cardholder's bank account. When a transaction is made, funds are immediately deducted from the associated account. Debit cards are popular because they help users manage their spending by using only the available balance.

Prepaid Cards

Prepaid cards are pre-loaded with a specific amount of money and can be used until the balance is depleted. They are not linked to a bank account and are often used as gift cards or for budgeting purposes. Prepaid cards offer a way to control spending and avoid debt.

There are a number of types of payment cards, the most common being credit cards, debit cards, charge cards, and prepaid cards. Most commonly, a payment card is used to facilitate transactions in a secure and efficient manner.

The Authorization and Settlement Process

The card payment process is divided into two main phases: authorization and settlement. Each phase plays a crucial role in ensuring that transactions are processed smoothly and securely.

Authorization Phase

The authorization phase is the initial step in a card transaction. During this phase, the cardholder presents their card to a merchant, either online or at a point of sale. The merchant then sends a request for payment authorization to their payment processor. The payment processor forwards the transaction details to the appropriate card network, which communicates with the cardholder's issuing bank. The issuing bank verifies the card details, including CVV, AVS validation, and expiration date, and checks if there are sufficient funds to cover the transaction amount. This entire process takes only a matter of seconds.

Settlement Phase

Once a transaction is authorized, it moves to the settlement phase. This is the stage at which a transaction is finalized and the funds are transferred from the buyer's account to the seller's account. Merchants send batches of authorized transactions to their payment processor, who then passes the transaction details to the card networks. The card networks communicate the appropriate debits with the issuing banks. The issuing bank charges the cardholder's account for the transaction amount and transfers the funds to the merchant's bank account. This part is essentially how the merchant gets paid from the credit cards they accept.

Role of Card Schemas

Card schemas, such as Visa, MasterCard, and American Express, play a pivotal role in both the authorization and settlement phases. They act as intermediaries that facilitate communication between the merchant's payment processor and the issuing bank. They ensure that the transaction details are accurately transmitted and that the funds are correctly debited and credited between the respective accounts.

Understanding how payment settlement works and how long it takes is essential for both merchants and cardholders to manage their finances effectively.

Key Players in the Card Payment Ecosystem

The card payment ecosystem is a complex network involving multiple key players, each with distinct roles and responsibilities. Understanding these players is crucial for grasping how card payments are processed and managed.


Issuers are financial institutions, typically banks, that provide payment cards to consumers. They are responsible for underwriting the credit risk and managing the cardholder's account. Issuers play a pivotal role in the payment ecosystem by ensuring that consumers have access to credit and debit facilities.


Acquirers, also known as merchant acquirers, are banks or financial institutions that manage merchant accounts. They facilitate the acceptance of card payments for merchants and ensure that funds are transferred from the issuing bank to the merchant's account. Third-party merchant acquirers have come to play an important role in expanding and developing the merchant payments ecosystem for cards.

Payment Processors

Payment processors act as intermediaries between issuers and acquirers. They handle the technical aspects of processing card transactions, including authorization, clearing, and settlement. The landscape for card and A2A payment processing is evolving, with traditional incumbents consolidating through M&A activity and next-generation processors experiencing rapid growth and achieving high valuations.

Due to the growing complexity of the payment ecosystem, many payments involve two additional actors that simplify the process for the merchants and absorb operational costs as software connection between different actors in the process.

Challenges Faced by Card Based Payment Instrument Issuers

Security Concerns

Even if security has always been considered a pressing need in the design of payment solutions, the complexity of the card payment process and the number of actors, software, and hardware involved continue to produce a number of security risks ranging from card forgery to more sophisticated techniques. One of the biggest breaches of all times involved the payment processor Heartland.

Regulatory Compliance

Issuers must navigate a complex landscape of regulations designed to protect consumers and ensure the integrity of the payment system. Strong customer authentication (SCA) is a regulatory requirement aimed at reducing fraud in digital payments. Compliance with these regulations often requires significant investment in technology and processes.

Technological Advancements

The payments industry is preparing itself for a "cardless" world. There is a natural reluctance on the part of card issuers and networks to encourage consumers to adopt new alternative payment methods because of the commercial interest in maintaining payment card revenues. However, change seems inevitable, based on catalysts like Open Banking, which banks, merchants, and consumers will increasingly adopt.

By making investments in payment infrastructures, card providers can rise to the challenge and launch new products/services faster.

The Future of Card Based Payments

Open Banking is set to revolutionize the payments industry by enabling more seamless and secure transactions. Banks, merchants, and consumers will benefit from increased transparency and control over financial data. This shift is expected to drive innovation and competition, ultimately leading to better services and lower costs for consumers.

New technologies are opening the way for innovation in payments. Issuers, card networks, payment processors, and merchant acquirers are investing heavily in revamping their payment systems. These technological advances include tokenization, intelligent routing, and personalized end-to-end experiences. The payments industry is preparing itself for a "cardless" world, with contactless payments and smartphone apps becoming more prevalent.

The payments industry is gradually moving towards a cardless future. There is a natural reluctance on the part of card issuers and networks to encourage consumers to adopt new alternative payment methods because of the commercial interest in maintaining payment card revenues. However, change seems inevitable. The Payments-as-a-Service (PaaS) model is expected to transform the landscape, offering a variety of separate, assembled, and extended payment functions. This will support a superior customer experience and a more efficient payment ecosystem.

The future of card-based payments is not just about cards; it's about creating a seamless, secure, and efficient payment experience for everyone involved.

The Relationship Between Issuers and Merchants

Merchant Acquirers

Merchant acquirers play a crucial role in the payment ecosystem by facilitating the acceptance of card payments for merchants. They manage the onboarding process, ensuring that merchants are validated, registered, and trained to execute digital payments. Merchant acquirers also provide the necessary point-of-sale devices, merchant accounts, and software solutions to start accepting transactions.

Merchant Services

Merchant services encompass a range of offerings that support merchants in processing card payments. These services include transaction processing, fraud detection, and customer support. Merchant networks are managed on an ongoing basis to resolve problems and ensure smooth operations. Initially, acquiring banks played all these roles themselves, but over time, third-party providers have taken on parts of the process.

Revenue Models

The revenue models for issuers and merchants are interconnected. Merchants send batches of authorized transactions to their payment processor, who then passes the transaction details to the card associations. The issuing bank charges the cardholder’s account and transfers the appropriate funds to the merchant bank, minus interchange fees. This process highlights the interdependence between issuers and merchants in the payment ecosystem.

The card processing industry has two distinct but interconnected sets of players – acquiring players and issuing players. Acquiring players focus on serving businesses that sell things, called merchants. Issuing players focus on serving buyers, called cardholders. A variety of company types interact between these two sides, and the lines blur much of the time.


In conclusion, the role of Card Based Payment Instrument Issuers (CBPIIs) is pivotal in the modern payment ecosystem. They act as the linchpin connecting various stakeholders, including cardholders, merchants, and financial institutions, ensuring seamless and secure transactions. By issuing card-based payment instruments, CBPIIs facilitate the initiation of payment transactions from accounts held with other payment service providers, thereby enhancing the fluidity and efficiency of the payment process. Despite the evolving landscape towards a potentially cardless future, the foundational infrastructure and services provided by CBPIIs remain indispensable. Their continuous innovation and adaptation to new technologies and regulatory frameworks will be crucial in shaping the future of payments, ensuring that all participants in the ecosystem can transact with confidence and ease.

Frequently Asked Questions

What is a Card Based Payment Instrument Issuer (CBPII)?

A Card Based Payment Instrument Issuer is a payment services provider that issues card-based payment instruments which can be used to initiate a payment transaction from a payment account held with another payment service provider.

What are the key functions of a Card Based Payment Instrument Issuer?

The key functions of a Card Based Payment Instrument Issuer include issuing credit, debit, or prepaid cards, managing cardholder accounts, ensuring transaction security, and complying with regulatory requirements.

How does the authorization and settlement process work?

The authorization process involves verifying the cardholder’s information and approving the transaction. The settlement process involves transferring funds from the cardholder’s bank to the merchant’s bank. Card schemas facilitate communication between issuers and acquirers during these processes.

Who are the key players in the card payment ecosystem?

The key players in the card payment ecosystem include issuers (who issue the cards), acquirers (who manage merchant accounts), and payment processors (who handle the transaction processing).

What challenges do Card Based Payment Instrument Issuers face?

Challenges faced by issuers include security concerns, regulatory compliance, and keeping up with technological advancements.

What is the impact of emerging technologies on card based payments?

Emerging technologies such as Open Banking and digital wallets are transforming the card payment landscape, with trends moving towards a cardless world where traditional payment cards may become less prevalent.

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