Card networks: an explainer

Card networks are at the heart of every transaction.

Whenever we pay electronically for anything in-store or online, card networks encrypt and coordinate our transaction data through a complex web of digital pathways.

They do this over a billion times a day. And in customers' eyes, this process is invisible and instant.

This blog explains why understanding the debit and credit card network processes is pivotal for understanding the wider payment processing system.

What is a card network?

A card network (also known as a 'card scheme') is an organization, like American Express, that provides a key component of the technological infrastructure for credit card payments.

Their main task is to authorize and process credit, debit and online card payments. They do this by providing a communication system to facilitate transactions between customers' issuing banks and the merchants' acquiring banks.

They also set transaction terms, which are another key element of the payment processing chain.

Credit card networks vs debit card networks

Card networks typically cover both credit card transactions and debit card transactions.

The choice of card network (Visa, Mastercard, American Express, Discover, etc.) is usually determined by the issuing bank and the merchant's point-of-sale terminal.

When a cardholder uses their card, the bank that issued the card (e.g., Bank A) may have agreements with multiple card networks (e.g., Visa and Mastercard) to process transactions.

The bank's system, along with the cardholder's choice (if applicable), will determine which network is used for a specific transaction.

In practice, both credit and debit cards can use a variety of card networks, and the specific network used for a given transaction depends on various factors. These include the cardholder's bank, the merchant's terminal, and the network agreements in place.

Examples of major credit card networks

Globally, the four major credit card networks are Visa, Mastercard, American Express and Discover.

However, other networks are increasingly popular in other regions. For example, China primarily uses UnionPay, while Japan uses JCB.

What's the difference between a card network and a card association?

Though these phrases are often used interchangeably, especially in the U.S., there is a distinction

A card network, such as Visa or Mastercard, is primarily responsible for the technical infrastructure and processing of card transactions. It manages the routing of transactions to reach the appropriate banks and facilitates the exchange of payment information.

A card association establishes and enforces the rules and standards for member banks that issue their brand of payment cards. They also set interchange fees.

They don't directly process transactions or handle funds. Instead, they work with member banks to ensure everyone follows their card brand's rules and maintains consistent standards.

The same company often operates both as a network and an association. This contributes to the confusion between the two terms.

What's the difference between a card network and a card issuer?

The fundamental distinction between card networks and card issuers is their respective roles in the payment process.

Card networks are a main player in the infrastructure of card payment transactions. They generate revenue through merchants' transaction fees.

Card issuers are responsible for cardholder accounts. They profit from charging cardholders fees on interest, late payments, foreign exchange, and processing fees and more.

Can card networks also be issuers?

In certain cases, card networks can also be card issuers. For example, American Express and Discover, both operate as card networks and card issuers. They issue their own credit and debit cards directly to customers under their own brand.

Types of card networks

Open card networks

Open networks, like Visa or Mastercard, maintain relationships with multiple card issuers.

Closed card networks

Closed networks, like American Express or Discover, are exclusively linked with one financial institution. No other company can issue cards that are tied to a closed network system.

Closed card networks play the role of acquirer and disburse funds directly to the merchant’s account.

How do card networks work?

Card networks work by facilitating the connection and communication between the main financial institutions involved in the payments process. This is the issuing bank (the customer’s bank) and the acquiring bank (the merchant’s bank). It typically takes place as follows.

1.交易启动

当持卡人在商店的销售点（POS）使用读卡器，或在在线结账页面上按下 "支付 "键时，他们通常会认为这是一次完整的交易。

然而，事实并非如此。它实际上是交易的启动。换句话说，他们在提交付款信息（通常是银行卡信息和姓名）的同时，还请求批准付款。

2.验证

然后，实体或在线支付终端将支付信息和请求传递给支付网关进行验证。

3.加密

如果验证成功，支付网关就会加密，然后将已验证的客户和交易信息传递给支付处理器。然后，他们再将信息传送给银行卡网络。

4.授权/否决和确认

银行卡网络授权或拒绝交易。然后，他们通过银行卡网络将结果通知支付处理商。支付处理机构再将决定通知商家和持卡人。

5.资金的持有和储备

在收单银行（商家的银行）对交易进行验证时，资金暂时处于 "待处理 "状态。验证完成后，处理商会通知银行卡网络，银行卡网络会将交易转给持卡人的银行（通过发卡处理商）进行审批。

如果获得批准，资金将被存入 "准备金"，直到结算程序完成。这通常需要几天时间。

6.安置

结算是指资金从持卡人账户最终转入商家账户的过程。

结论

银行卡网络是电子支付不可或缺的一部分。在支付处理生态系统中，它们是发卡银行与商户收单机构之间的关键纽带。

它们促进交易的无缝流动，是发卡银行和商户收单机构之间的桥梁。

银行卡网络在支付验证和授权过程中发挥着关键作用，确保了电子支付的安全性和效率。它们的贡献增强了资金交换的安全性。

开放式银行卡网络，如维萨卡和万事达卡，与多家金融机构合作。而封闭式银行卡网络，如美国运通卡，则只与一家机构合作。

了解银行卡网络的细微差别对于理解电子支付的复杂机制至关重要。

2023 年 7 月，联邦储备支付研究（FRPS）报告称，信用卡支付的增幅位居第二，增至 达到 511 亿约占 2021 年信用卡支付总额的三分之一。

这表明，银行卡支付的普及率仍在不断提高，尤其是在美国。银行卡网络已巩固了其作为当前电子商务和金融交易关键的地位。