Issuer
Also known as: Issuing bank, Card issuer
An issuer is the payment service provider that gives a customer a card and carries the cardholder relationship. It approves or declines each payment, and it receives the interchange fee that the merchant's acquirer pays on every transaction.
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Example
A customer taps a card from her own bank at a café. That bank is the issuer: it decides in a moment whether to approve, and it earns the interchange on the sale.
A merchant never meets the issuer. Yet the issuer decides whether the sale happens.
The Interchange Fee Regulation defines an issuer as a payment service provider "contracting to provide a payer with a payment instrument to initiate and process the payer's card-based payment transactions". It is the cardholder's bank, or an e-money or payment institution that issues cards. The same regulation notes that one provider "can be an issuer or an acquirer or both".
The issuer holds the customer relationship. It checks the balance or credit line, applies its own risk rules and sends back the approve or decline. The merchant's acquirer relays that answer.
Money flows the other way too. On every card payment the acquirer pays the issuer an interchange fee. Issuers also pay the scheme fees that cover their side of the card scheme, and the Commission's 2020 review of the regulation noted that issuers' scheme fees had increased to a limited extent. The regulation counts any "net compensation" an issuer receives from the scheme or acquirer as part of the interchange fee, so the cap cannot be sidestepped through rebates.
A merchant sees the issuer indirectly. A decline code comes back, and the statement shows a cost that varies with the card, because the interchange paid to the issuer varies with the card.
Merchants often blame the acquirer for declines. Many declines are the issuer's decision, though not all: the acquirer's own risk checks and technical failures can also stop a payment. A merchant who sees a pattern should ask for the decline reasons before replacing a terminal.
Merchants do not pick issuers. Customers do. That is the part of the system a merchant cannot negotiate.