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Card Network Role

Card networks (also called card schemes or card brands) are the backbone of electronic payments. They don't hold money or issue cards—they provide the infrastructure, rules, and routing that make card payments possible worldwide.

Overview​

What Card Networks Actually Do​

Card networks serve three critical functions:

FunctionDescription
Rule SettingDefine standards for all participants (issuers, acquirers, merchants)
Transaction RoutingRoute authorization requests between acquirers and issuers
Settlement FacilitationCalculate net positions and facilitate fund transfers

The Major Card Networks​

NetworkTypeMarket Share (US Volume)Notable Characteristics
VisaOpen-loop~60-65%Largest global network, does not issue cards
MastercardOpen-loop~25-30%Second largest, does not issue cards
American ExpressClosed-loop~8-10%Issues own cards, serves as issuer + acquirer
DiscoverClosed-loop~1-2%Issues own cards, US-focused
Note on Market Share

Amex's share of total spending may appear higher (~20%+) because they target affluent customers with higher average transaction values. The figures above reflect transaction volume/count.

Core Concepts​

Understanding card networks requires grasping several key concepts:

1. INFRASTRUCTURE PROVIDER

Card networks are technology and rules platforms, not financial institutions:

  • They operate global communication networks
  • They maintain BIN routing tables
  • They provide brand recognition and trust
  • They do NOT lend money or hold deposits

2. TWO FUNDAMENTAL MODELS

Networks operate under two distinct structures:

  • Open-Loop (Visa, Mastercard): Acts as neutral intermediary between banks
  • Closed-Loop (Amex, Discover): Acts as issuer, acquirer, AND network

3. REVENUE MODEL

Networks generate revenue from:

  • Assessment fees (~0.13-0.15% per transaction)
  • Fixed per-transaction fees ($0.02-$0.04)
  • International processing fees
  • Brand licensing fees

How Networks Fit Into Payments​

┌─────────────┐                                       ┌─────────────┐
│ CARDHOLDER  │                                       │  MERCHANT   │
│             │                                       │             │
│ (Customer)  │                                       │ (Business)  │
└──────┬──────┘                                       └──────┬──────┘
       │                                                     │
       │ Issues card                           Accepts card │
       │                                                     │
       ▼                                                     ▼
┌─────────────┐         ┌───────────────┐         ┌─────────────┐
│   ISSUER    │◀───────▶│ CARD NETWORK  │◀───────▶│  ACQUIRER   │
│             │         │               │         │             │
│ (Chase)     │         │ (Visa / MC)   │         │ (Wells)     │
└─────────────┘         └───────────────┘         └─────────────┘
                               │
                               │ Provides:
                               │ • Transaction routing
                               │ • Rules & standards
                               │ • Dispute resolution
                               │ • Brand value
                               └─────────────────────

Explore Card Network Topics​

This section covers card networks in depth. Start with any topic that interests you:

Network Models​

Open-Loop vs Closed-Loop Networks

Understand the fundamental difference between Visa/Mastercard's open model and Amex's closed model, and why it matters for fees, competition, and merchant relationships.

Technical Operations​

Transaction Routing

Learn how card networks use BINs to route authorization requests to the correct issuing bank in milliseconds, and what validation happens along the way.

Compliance & Governance​

Network Rules and Compliance

Discover why card networks publish extensive rulebooks, what happens when merchants violate rules, and how these rules protect the entire ecosystem.

Economics​

Network Fees and Assessments

Break down the often-overlooked network fees that merchants pay beyond interchange, including assessment fees and passthrough charges.

Risk Management​

Card-Present vs Card-Not-Present

Understand why e-commerce transactions cost more than in-store purchases, and how transaction risk affects interchange rates.

Knowledge Check​

Self-Assessment Quiz

Test your understanding of card network concepts with comprehensive questions and detailed answers.

Key Terms Defined​

TermDefinition
Card Scheme / Card NetworkOrganization that provides infrastructure, rules, and routing for card payments (Visa, Mastercard, Amex, Discover)
Open-Loop NetworkNetwork where multiple banks can issue cards and acquire merchants (Visa, Mastercard)
Closed-Loop NetworkNetwork where a single entity acts as issuer, acquirer, and network (Amex, Discover)
Network AssessmentFees charged by card networks for using their infrastructure, typically 0.13-0.15% of volume
BIN (Bank Identification Number)First 6-8 digits of card number identifying the issuing bank, used for transaction routing
Card-Present (CP)Transaction where the physical card is presented (swipe, dip, tap)
Card-Not-Present (CNP)Transaction where card is not physically present (online, phone, mail)
ISO 8583International standard for payment card message formats used by networks
MATCH/TMF ListMastercard's terminated merchant file—a blacklist of merchants terminated for cause

Key Takeaways​

  1. Networks are infrastructure, not banks - Visa and Mastercard don't issue cards or hold money; they provide rails and rules

  2. BIN is the routing key - The first 6-8 digits determine where a transaction goes

  3. Open vs Closed matters - Open-loop creates competition and lower fees; closed-loop provides control and premium positioning

  4. Rules protect everyone - Network rules ensure interoperability, protect consumers, and maintain trust

  5. CP vs CNP = Risk vs Rate - Card-not-present transactions carry more risk and cost more

References​

Official Network Documentation​

BIN Information​

Industry Resources​

Regulatory​

Further Reading​

  • "Payments Systems in the U.S." by Carol Coye Benson - Comprehensive textbook on US payment systems
  • Visa Annual Report - Understanding network economics from financial disclosures
  • NerdWallet: Credit Card Processing Fees - Practical breakdown of merchant fees
  • Stripe's Guide to Card Networks - Developer-friendly explanation
TopicDescription
The Four-Party ModelCore participants (issuer, acquirer, network) explained
Transaction LifecycleHow authorization, capture, and settlement actually work
Debit Networks & RoutingPIN networks, Durbin Amendment, and least-cost routing

Continue learning: Choose a topic above or test your knowledge with the quiz

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