What Are Credit Card Networks?

Credit card networks provide the infrastructure for customers to make purchases from merchants. They allow financial institutions to talk to each other, approve transactions, and—ultimately—hand over the money. If the bank accounts of a business and a customer are like individual countriꩵes, then a credit card network is like the ▨international shipping company that goes between the two. 

Credit card networks—along with the other moving parts in card-based transactions—help power many of the payments people make these days. They sometimes offer benefits to consumers, such as rental car insurance or travel rewards. More importantly, the different networks charge various fees to businesses, which they may pass on to their customers, or they may decline to accept certa🔯in cards as payment entirely.  

How Credit Card Networks Work

If you’ve only ever swiped your credit card to make a purchase, it can be shocking to 🎐realize how many parts are movin💛g in the background for that one transaction to take place. 

To see how credit card networks operate alongside all the other bits to help process a transaction, we’ll consider a fictional purchase of a vampire costume that you make from Colin’s Halloween Store using your Visa credit card from Al Qolnidar Bank. Here are the steps involved.

1. Customer gives their credit card to the merchant: You can enter your card details online, use a mobile wallet, tap, swipe, etc.—each of which may cause Colin to pay different fees to process your transaction. 
2. Merchant submits the payment information to the credit card processor: Colin enters your credit card information and purchase amount into his 澳洲幸运5官方开奖结果体彩网:point-of-sale (POS) system, which then contacts the company he hired to process credit card payments.
3. Credit card processor contacts the acquiring bank: The credit card processing company passes this information on to an “澳洲幸运5官方开奖结果体彩网:acquiring bank,” which holds a separate merchant account used as a temporary holding fund for credit card payments.
4. Acquiring bank contacts the credit card network: Your payment information is routed to the 澳洲幸运5官方开奖结果体彩网:Visa credit card network, which has the address for your account at Al Qolnidar Bank. 
5. Credit card network contacts the issuing bank: Visa passes the information on to Al Qolnidar Bank to see if you can make the purchase. Al Qolnidar Bank checks your account to make sure your credit limit allows for the payment.
6. Issuing bank approves the transaction and sends payment to the acquiring bank: If everything’s clear on your account, Al Qolnidar Bank sends a signal back through the network to give Colin the green light, alerting him that payment is on the way and that you can leave with your costume purchase just in time for the midnight party.
7. Acquiring bank holds the payment for the credit card processor: Al Qolnidar Bank sends the funds to the acquiring bank (get it—the “acquiring bank” acquires the payments), where they’re tucked away safely into the merchant account.
8. Credit card processor passes the payment on to the merchant: Colin requests that his credit card payments—currently stored in the merchant account—be transferred to his day-to-day business bank account. Only then can he actually access the money from the purchase—minus any credit card processing fees, of course.

Top Credit Card Networks

There are many𝕴 credit card networks worldwide, but most credit cards in the U🐬.S. fall under only a few major ones:

• Visa
• Discover
• 澳洲幸运5官方开奖结果体彩网:Mastercard
• 澳洲幸运5官方开奖结果体彩网:American Express

Functionally speaking, there’s not too much differe🍬nce between the networks. “Visa, Mastercard, and Discover are essentially one and the same at this point,” says Phillip Parker, founder of .

American Express stands out because of the high fees it charges merchants. This even causes some businesses to refuse it as a payment method, flustering many a customer trying to use their Amex card to pay for a purchase. “It's a bittersweet pill for business owners because Amex cardholders are often affluent and big spenders, but their business comes at a higher price,” says Parker.

Credit Card Network Fees

Given the list of companies ꦍshaking hands in order to make a single credit card payment happen, it’s understandable why it costs a business owner more to accept credit cards. Companies and credit card networks charge fees at various points along the way, which are rolled up and passed on to the merchant—who often passes them on to the customer in the form of higher prices. 

These collective fees are known as the 澳洲幸运5官方开奖结果体彩网:merchant discount rate (MDR) because they’re taken out of the payment merchants ultimately get in their bank account. A typical MDR ranges from 1% to 3%, meaning that for every $100 processed through the credit card network, the business owner receives $97 to $99. The MDR is typically charged by the credit card processing company, and it’s composed of three main charges:

• Interchange fees: These are paid to the bank that issues the credit card. It’s typically the largest chunk of the MDR, and the credit card network sets the price based on the type of card and how it is used (swiped in person vs. entered online, for example).
• Assessment fees: The credit card network takes a cut of the fee for its services to bridge the gap between the customer and the merchant. 
• Payment processing fees: The payment processing company charges fees too, which it does in various ways, such as with a tiered pricing model, a flat rate per transaction, etc. 

“As a business, the🗹re is more than one pricing schedule when it comes to how your processing fees can be assessed,” 🥂says Parker. “Some schedules are transparent and fair, while others are intentionally veiled and expensive. Getting a basic understanding of these pricing models can save you a ton in fees.”

Types of Credit Card Networks

Credit card networks generally operate on an open or cꦦlosed basis, and these terms could refer to several things.

Open-loop credit cards can be used anywhere their network, such as Visa, is accepted. They’re what you likely think of as a typical credit card. 澳洲幸运5官方开奖结果体彩网:Closed-loop credit cards, in contrast, are often issued by individual merchants on their own private network and can only be used in that specific store (like a Home Depot store credit card). These are 🧸popular with many nationwide r꧅etailers.

A closed credit card network could also refer to American Express or Discover, which cut out the issuing bank and work directly between the customer and the merchant’s payment processing system. You can get a Visa card issued by Chase Bank, for example, but if you get an 澳洲幸运5官方开奖结果体彩网:Amex Platinum Card, it’s𝐆 just that—a card issued by Amex, using the Amex network. 

Credit Card Network vs. Credit Card Issuer

A credit card network facilitates the flow of information and money between a customer’s bank and the business owner’s. It’s like the 🎶shipping company that moves goods from one country to another, or the swit🐟chboard operator that connects two people making old-timey phone calls. 

The credit card issuer, on the other hand, is the company that gives the credit card to the customer and maintains the customer’s 澳洲幸运5官方开奖结果体彩网:credit account. The issuer charges the customer annual fees and interest, handles purchase disputes, resolves cases of credit card fraud, offers rewards, and more. 

Companies operating on closed networks, notably American Expres༒s and Discover, do both: They handle the customer account side of things, as well as the background flow of information between the customer and the merchant. 

Frequently Asked Questions (FAQs)

The Bottom Line

Credit card payment processing is a surprisingly complex series of events, and credit card networks are key players in that process. Indeed, credit card networks themselves drive a large part of the cost of using credit cards, which is one of the biggest differences between networks. For that reason, government regulators have been placing limits on credit card fees in recent years to help keep things fair for consumers and business owners.