We strive for optimal credit card payment instruments in Europe

Issuers

Acquirers

Merchants

Cardholder

Schemes

Credit card issuers must work with a credit card scheme – a payment processing network, which primary role is to manage payment transactions undertaken by its brand. This includes authorisations, clearing and settlement.

Card schemes also promote awareness of their brand, and set and enforce strict rules for all clients to maintain the integrity of the payment network.

An credit card issuer is a financial institution which funds credit cards, and in doing so holds the related credit risk. Issuers operate in the territory (Europe in this case) under a brand licence from the card scheme and must comply with scheme rules. Issuers are also responsible for settling payments with the merchant (via the scheme and acquirer) when a transaction is made, in accordance with the compliance rules of the countries in which they are operating. Additionally, they invest in the technology and operations required to ensure a convenient and secure user experience throughout the payment process.

4-party model

3-party model

Interchange fees are one of the income sources for payment card issuers. When a payment card transaction takes place, the interchange fee is paid by the acquiring bank to the issuing bank. In the EU, interchange fees are currently capped at 0.3% of the transaction for consumer credit cards and 0.2% for debit cards, whereas commercial payment cards are not in the scope of the regulation. The issuers use this income to support the many benefits they provide to cardholders. This, in turn, encourages cardholders to use their cards widely which benefits merchants accepting the cards.

Although debit and credit cards may look similar, there are important underlying differences. Debit cards are used by the cardholder, to access funds they have deposited in their bank account. Credit cards, on the other hand, allow customers to have a line of credit (up to a limit) from the card issuer. The cardholders can pay back the line of credit in full at the end of the month or 'revolve' the borrowing, i.e. pay it back with interest over an extended period. In this case, the issuer carries a liability risk if the funds are not repaid.

Credit cards also offer benefits for their users through 'cashback' and other rewards programmes not generally available for debit card users. Some credit cards may also have additional protections such as insurance and purchase protection.

Carrying cash can be risky as it can easily be lost or stolen and then very difficult to trace or recover. Furthermore, there is a limited obligation for a merchant to refund a cash transaction if the purchased goods are faulty.

Card payments provide security against many types of fraud and enable disputes to be resolved with a merchant if required.

Payment cards are often the main payment instrument accepted by online shopping sites, providing quick, secure and convenient payments.

With a credit card, a cardholder can make a purchase straightaway and pay for it later. This eases cash-flow and enables cardholders to acquire goods or book services for which they do not have full funds immediately available.

There may also be benefits from various loyalty programmes such as 'cashback' and travel rewards, as well as insurance coverage and consumer protection.

Credit cards also enable cardholders to easily keep track of their spending. When paying by cash one is responsible for keeping receipts and any records needed. On the other hand, when using a credit card one can track purchases online (via app or browser) and receive a monthly statement with a list of all purchases, including merchant details.

Card payments are more secure compared to cash payments. Due to numerous fraud prevention features, card users are protected against fraud, e.g. by verifying the authenticity of the card and the cardholder as well as checking online to authorise a payment.

Furthermore, credit card payments provide protection for purchases, e.g. if a purchased product is damaged or does not arrive, money paid out can be reimbursed. This is possible because there is a robust dispute resolution process in which the issuer initiates and processes a refund for the cardholder. Customers can also seek reimbursement if a service is not rendered (e.g. airline bankruptcy).

Credit cards stimulate the economy by increasing consumer and business purchasing power. When consumers use credit cards to purchase goods and services, which they do not currently have funds for, it enables businesses to make sales that they might not have received otherwise. Without this facility, merchants would either have to extend the credit themselves (and take the risk), only accepting sales from customers with the full funds available or making a lower volume and value of sales.

Credit cards provide a line of credit which has to be repaid, and will normally charge interest during the borrowing period (after an initial grace period). Card issuers make informed decisions about credit risk and customers' ability to repay, and also assume liability if this is defaulted.

To maintain their licence to issue cards under a card scheme brand (e.g. Visa or Mastercard), issuers have to comply with all relevant industry standards and scheme rules. An example of card payment industry standards are the Payment Card Industry Data Security Standards (PCI DSS), which apply to any organisation, regardless of size or number of transactions, that accepts, transmits or stores any cardholder data. PCI DSS is designed to protect sensitive customer data when storing and processing payment card information. Other industry standards cover chip specifications and customer authentication, as well as contactless payments and mobile payment solutions.

Additionally there are complex technical requirements for all parties to adhere to, set out in scheme rules. These rules are regularly updated, requiring ongoing compliance in order to protect the system integrity and ensure the best user experience.

The rise of FinTech and digital payment platforms have ushered in a new era for the payments sector, which has sparked technological innovation. Previously, there was a wholesale shift migrating to chip-based cards, which replaced magnetic strip cards. More recent developments in the industry include contactless payment methods, which have gained huge popularity globally. These methods enable payment cards to be used as tools in new services, such as ticketless travel. Additionally, other tools have emerged (mobile and in app solutions) based on tokenisation principles. Issuers are making long-term investments to ensure a high degree of security and a simple user experience for their customers.

FinTech companies generally have low customer acquisition costs and strong data advantages, but are often not subject to the same regulations as traditional financial institutions. This enables them to maintain a lower cost base and potentially better rates than their banking peers. Recently, globally active technology companies, the so-called big tech companies, have been entering the market. These companies have a competitive advantage because they can leverage their existing customer networks and large amounts of proprietary data to provide financial services. However, these Fintech players may only offer limited propositions, such as prepaid solutions, but not credit line facilities. These prepaid solutions may not follow full Anti-Money Laundering and KYC ('Know Your Customer') rules that banks have to comply with, which may increase overall security risks in the market.

ACCIE's mission on behalf of European credit card issuers is to ensure that we can best meet the needs of our customers across Europe. ACCIE represents the credit card industry with EU institutions, where it campaigns for clarifying the role of the issuer in the credit card payments chain, economic cycle and GDP growth support. ACCIE also informs decision-makers on the impact of EU initiatives on payment systems. Learn more about the credit card issuers' role in the payments market here.