Credit card issuer’s and Credit Card processors?

There is often confusion about who actually runs a credit card when there are up to three names on the credit card.  There are in fact a number of different roles and although the bank that “issues” the credit card can be said to be running the card, other parties also have a very significant role.

Credit cards started out as store cards that were issued by a store and they had a revolving line of credit.  The card was run by the store, issued by the store, financed by the store and could only be used in the store.  They were the only party on the card, other than the consumer.

In the 1950s a number of banks in California put out the first credit cards which aimed to replace these revolving store cards with a single source of consumer credit.  This meant that the process by which the cards would have a number of different roles was started.

The most important role on the credit card is the issuer.  The issuer is the bank that runs the credit card, advances the money that can be used by the consumer and sends out statements.  These are the main parties and they collect most of the money.

Many cards do not have the brand of the issuer on them.  There are a number of banks that simply issue credit cards for stores who decide the policies and interest rates on the cards and sub-contract the running of the cards to companies like GE Finance.  There are also affinity schemes where a charity is paid a portion of the card revenue, although these are rare in Australia.

However these cards would have a very low rate of acceptance if they were only able to be used in stores that had an account with the issuing bank.  This meant that the banks came together in networks that are called credit card processors.  The credit card processors are VISA and MasterCard and based on the Californian banks that first issued the credit cards.  Australia’s credit card processor, Bank Card, gradually died out due to a lack of overseas acceptance and an unwillingness to market the card.

The card processors are now profit making companies but until recently they were both run on a co-operative model and owned by the banks and credit unions that issued the cards, including a large number of Australian banks.