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Card Network Role: Self-Assessment Quiz

Last Updated: 2025-12-24

Status: Complete

Test your understanding of card networks with these comprehensive questions.

How to Use This Quiz​

Work through each question before reading the answer. These questions are derived from the card network role documentation and test critical concepts you'll need to understand how payment networks operate.

Question 1: Open-Loop vs Closed-Loop Networks​

What is the fundamental difference between Visa/Mastercard (open-loop) and American Express (closed-loop)?

Click to see answer

Answer:

Open-Loop (Visa/Mastercard):

  • The network is a neutral intermediary that only provides routing and rules
  • Any bank can issue cards branded with their logo
  • Any bank can sign up merchants to accept their cards
  • The network does NOT have direct relationships with cardholders or merchants
  • Creates competition among issuers and acquirers, generally resulting in lower merchant fees

Closed-Loop (American Express):

  • Amex acts as all three parties: network, issuer, AND acquirer
  • Amex issues most cards directly to consumers (has direct cardholder relationship)
  • Amex signs merchants directly (has direct merchant relationship)
  • No competition on their network—they set all fees
  • Results in higher merchant fees but more control over experience and data

Key Implication: When a merchant accepts Amex, there's no interchange—Amex keeps the entire merchant discount. With Visa/MC, the fee is split between the issuing bank (interchange), network (assessment), and acquirer (markup).

Question 2: Network Rules Purpose​

Why do card networks publish rules that all participants must follow? What happens if a merchant violates network rules?

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Answer:

Why Rules Exist:

  1. Interoperability - Ensures any Visa card works at any Visa merchant worldwide. Without standards, a card from Chase might not work at a terminal configured for Bank of America.

  2. Consumer Protection - Guarantees cardholders consistent rights (dispute resolution, zero fraud liability, refund policies) regardless of which bank issued their card.

  3. Brand Trust - The Visa/MC logo is a promise of reliability and security. Rules prevent bad actors from damaging this trust.

  4. Risk Management - Rules around security (PCI-DSS), chargeback thresholds, and prohibited businesses protect the entire ecosystem.

Consequences for Violations:

SeverityConsequence
Minor/First offenseWarning letter, education requirement
Repeated violationsFines ($5,000-$100,000+ per incident)
Serious violationsIncreased monitoring, higher reserves required
Severe/ContinuedProcessing restrictions, volume caps
Worst caseTermination + MATCH listing (5-year ban)

A MATCH-listed merchant cannot accept cards at any processor, effectively ending their ability to operate most modern businesses.

Question 3: Transaction Routing Mechanism​

How does a card network route an authorization request to the correct issuing bank?

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Answer:

The routing process uses the BIN (Bank Identification Number):

  1. Card Presented - Customer taps/swipes card with number 4532-1234-5678-9012

  2. Network Identified - First digit (4) indicates Visa network

  3. Acquirer Sends to Visa - The merchant's processor sends the authorization request to Visa

  4. BIN Lookup - Visa maintains a BIN table mapping the first 6-8 digits to specific issuers:

    • 453212 → Chase
    • 412345 → Bank of America
    • 423456 → Citi

  5. Route to Issuer - Visa routes the request to Chase's authorization system

  6. Issuer Decides - Chase checks available credit, fraud signals, and card status, then approves/declines

  7. Response Returns - The response travels back: Chase → Visa → Acquirer → Merchant

This entire process takes 1-3 seconds. The BIN database is constantly updated as banks issue new card ranges.

Question 4: BIN Importance​

What is a BIN, and why is it important for transaction routing?

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Answer:

What is a BIN:

  • BIN stands for Bank Identification Number
  • It's the first 6-8 digits of a card number
  • Uniquely identifies the issuing bank and often the card product (e.g., Visa Signature vs. standard)

Structure:

Card: 4532-1234-5678-9012
      ──────
      BIN: 453212

First digit: Network (4=Visa, 5=Mastercard, 3=Amex)
Digits 1-6 or 1-8: Issuing bank + card product

Why It's Critical:

  1. Transaction Routing - Networks use BINs to route authorization requests to the correct issuing bank in milliseconds

  2. Interchange Determination - Different BINs have different interchange rates (rewards cards cost more than standard cards)

  3. Fraud Detection - BINs reveal card type and issuer, enabling risk decisions (e.g., prepaid cards are higher risk for certain merchants)

  4. Card Validation - Validates that the card number is from a legitimate, active BIN range

  5. Product Identification - Tells merchants whether it's debit/credit, commercial/consumer, rewards/standard—affecting processing decisions

Example BIN Insights:

BINIssuerCard TypeInterchange Tier
453212ChaseSapphire Preferred (Rewards)High
412345BofAStandard CreditStandard
414720ChaseDebitRegulated

Question 5: BIN Length Evolution​

Why are card networks transitioning from 6-digit to 8-digit BINs? What impact does this have on payment systems?

Click to see answer

Answer:

WHY THE CHANGE:

  • 6-digit BINs provide 1,000,000 possible combinations
  • With thousands of issuers globally (each needing multiple BINs for credit, debit, prepaid, commercial), we were running out
  • ISO/IEC 7812 updated in 2017 to allow 8-digit BINs (100,000,000 combinations)

IMPLEMENTATION TIMELINE:

  • 2017: ISO standard updated
  • 2018-2022: Networks began issuing 8-digit BINs
  • 2022-2025: Both 6-digit and 8-digit BINs in active use
  • Future: Gradual migration to 8-digit as standard

DEVELOPER IMPACT:

Payment systems MUST handle variable-length BINs (6 OR 8 digits):

  • BIN lookup tables need to support both lengths
  • Routing logic should check 8 digits first, fall back to 6
  • Never hardcode BIN length assumptions
  • Regular BIN table updates are essential

Example Logic:

1. Extract first 8 digits
2. Look up in BIN table
3. If not found, extract first 6 digits
4. Look up in BIN table
5. If not found, decline (invalid BIN)

Question 6: Network Assessment Fees​

What are network assessment fees, and how do they differ from interchange?

Click to see answer

Answer:

NETWORK ASSESSMENT FEES:

  • Fees charged by card networks (Visa/Mastercard) for using their infrastructure
  • Typically 0.13-0.15% of transaction volume
  • Charged to acquirer (passed to merchant)
  • Non-negotiable and set by the networks

HOW THEY DIFFER FROM INTERCHANGE:

AspectInterchangeAssessment
Who receivesIssuing bankCard network
Typical amount1.5%-2.5%0.13%-0.15%
PurposeCompensate issuer for credit risk, fraud, rewardsPay for network infrastructure
NegotiableNo (set by network)No (set by network)
Who paysAcquirer → IssuerAcquirer → Network

EXAMPLE $100 TRANSACTION:

Interchange:       $1.80  (to issuing bank)
Assessment (Visa): $0.14  (to Visa network)
Acquirer markup:   $0.40  (to processor)
─────────────────────────
Total fees:        $2.34

KEY POINT: Only the acquirer markup is negotiable. Both interchange and assessment are fixed by the networks.

Question 7: Passthrough Fees​

What are passthrough fees, and why are they often overlooked in merchant pricing?

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Answer:

PASSTHROUGH FEES are fixed per-transaction charges from card networks beyond the percentage-based assessment fee.

COMMON PASSTHROUGH FEES:

Visa:

  • APF (Acquirer Processing Fee): $0.0195 per transaction
  • Authorization fee: $0.02 per authorization
  • Clearing fee: ~$0.01 per cleared transaction
  • Digital Commerce Fee: 0.02% for e-commerce

Mastercard:

  • NABU (Network Access & Brand Usage): $0.0195 per auth
  • Digital Enablement Fee: $0.01 per transaction
  • Authorization/Clearing: $0.02-$0.04 total

WHY THEY'RE OVERLOOKED:

  1. Small individual amounts - $0.02 seems negligible compared to 2% interchange
  2. Not percentage-based - Many merchants only focus on percentage fees
  3. Buried in statements - Often grouped or not itemized clearly
  4. Cumulative impact - At scale, $0.04 per transaction adds up significantly

IMPACT AT SCALE:

Merchant processing 100,000 transactions/month:
- Passthrough fees: $0.04 × 100,000 = $4,000/month
- Annual cost: $48,000

This equals 0.04% on a $100 transaction, but on a $10 transaction,
it's 0.4% - making small-ticket merchants pay proportionally more.

EFFECTIVE NETWORK FEES: When all passthrough fees are included, effective network fees are typically 0.15% - 0.25%, not just the 0.14% assessment rate.

Question 8: Honor All Cards Rule​

What is the "Honor All Cards" rule, and what are its implications for merchants?

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Answer:

THE RULE: If a merchant accepts Visa, they must accept ALL Visa cards, including premium cards with higher interchange.

WHAT THIS MEANS:

If you accept Visa, you MUST accept:

  • Standard Visa cards
  • Visa Signature (premium rewards)
  • Visa Infinite (ultra-premium)
  • Visa corporate cards
  • Visa prepaid cards

YOU CANNOT:

  • Accept only low-interchange Visa cards
  • Refuse premium rewards cards because they cost more
  • Discriminate based on interchange cost

IMPLICATIONS:

  1. No selective acceptance - Can't cherry-pick profitable card types
  2. Cross-subsidy effect - Cash/debit customers effectively subsidize rewards cardholders
  3. Merchant power limited - Can't optimize by accepting only low-cost cards
  4. Interchange arms race - Creates incentive for issuers to offer better rewards (funded by merchants)

WHAT IS ALLOWED (under Durbin Amendment):

  • Set $10 minimum transaction amount for credit cards
  • Offer discounts for different payment types (cash vs card)
  • Surcharge for credit cards (in states where legal)

WHAT IS NOT ALLOWED:

  • Refuse specific card types within a network (e.g., accept Visa but not Visa Signature)
  • Surcharge based on specific card (must be network-level)

Question 9: Card-Present vs Card-Not-Present​

Why is card-not-present (CNP) interchange higher than card-present (CP) interchange?

Click to see answer

Answer:

Card-not-present (CNP) transactions have higher interchange because they have significantly higher fraud risk:

CARD-PRESENT (CP):

  • Physical card present and verified
  • EMV chip provides cryptographic authentication
  • Customer physically present
  • Very low fraud rate (~0.05% - 0.1%)
  • Typical interchange: 1.43% - 1.65% + $0.05-$0.10

CARD-NOT-PRESENT (CNP):

  • No physical card verification
  • Manual entry or e-commerce
  • Customer not physically present
  • Higher fraud rate (~0.5% - 1.5%) - 10-15x higher
  • Typical interchange: 1.80% - 2.95% + $0.10

WHY FRAUD RISK MATTERS:

  • Issuers bear more fraud risk on CNP transactions
  • Higher interchange compensates for this increased risk
  • Issuers must invest in fraud detection systems
  • Chargebacks are more common with CNP

COST IMPACT:

CNP interchange is typically 20-50% higher than CP:

$100 transaction comparison:
- Card-Present (chip): $1.54 interchange
- Card-Not-Present (e-commerce): $2.40 interchange
- Difference: $0.86 (56% higher)

IMPLICATION FOR PAYFACS: Platforms building e-commerce solutions face inherently higher costs than in-person retail, affecting pricing and margins.

Question 10: EMV Liability Shift​

What is the EMV liability shift, and how does it affect fraud liability?

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Answer:

The EMV liability shift determines who bears the cost of counterfeit card fraud based on terminal capability.

IF MERCHANT HAS EMV-CAPABLE TERMINAL:

  • Chip card used (chip read) → Issuer liable for counterfeit fraud
  • Chip card swiped instead → Merchant liable
  • Magnetic-only card → Issuer liable

IF MERCHANT DOES NOT HAVE EMV TERMINAL:

  • Chip card presented → Merchant liable (should have upgraded)
  • Magnetic card → Issuer liable

EXAMPLE SCENARIOS:

Scenario 1: Counterfeit chip card at modern terminal
- Merchant has EMV terminal, chip inserted: ✓ Issuer liable
- Merchant has EMV terminal, card swiped: ✗ Merchant liable
- Merchant has old swipe-only terminal: ✗ Merchant liable

Scenario 2: Lost/stolen chip card
- Card used with correct PIN: Issuer liable
- Card used with signature only: Liability shared (varies by network)

WHY IT WAS IMPLEMENTED:

  1. Incentivize EMV adoption - Made merchants upgrade terminals
  2. Reduce counterfeit fraud - EMV chips are extremely difficult to counterfeit
  3. Shift fraud online - As CP fraud declined, CNP fraud increased

RESULTS:

  • In-store counterfeit fraud dropped ~75% after EMV implementation (2015-2020)
  • Fraud migrated to CNP (e-commerce)
  • Nearly all US merchants now have EMV terminals

KEY POINT: Always use chip if available. Swiping a chip card shifts liability to the merchant.

Question 11: 3D Secure Benefits​

What is 3D Secure, and how does it benefit online merchants?

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Answer:

3D SECURE is an additional authentication step for card-not-present transactions that shifts fraud liability from merchant to issuer.

HOW IT WORKS:

3D Secure 2.0 (Current version):

  • Customer enters card details
  • Merchant requests authentication
  • Customer redirected to issuing bank
  • Bank authenticates via:
    • Biometric (fingerprint, face)
    • SMS/email code
    • Mobile app approval
  • Authentication token returned to merchant
  • Transaction processed with liability shift

VERSIONS:

VersionAuthenticationUXAbandonment RateStatus
3DS 1.0Static passwordsPopup window (poor UX)10-20%Being phased out
3DS 2.0Risk-based, biometricMobile-optimized, frictionless2-5%Current standard

LIABILITY SHIFT:

WITHOUT 3D Secure:
Fraudulent transaction → Merchant liable → Merchant loses chargeback

WITH 3D Secure (authenticated):
Fraudulent transaction → Issuer liable → Issuer loses chargeback

BENEFITS FOR MERCHANTS:

  1. Fraud protection - Issuer bears fraud liability, not merchant
  2. Lower chargebacks - Authentication proves customer consent
  3. Higher approval rates - Issuers more willing to approve authenticated transactions
  4. Regulatory compliance - Required in EU (SCA/PSD2), growing in other markets

CONSIDERATIONS:

  • Adds friction to checkout (though 3DS 2.0 minimized this)
  • Frictionless flow for low-risk transactions
  • Mandatory in EU, optional in US (but highly recommended for high-risk merchants)

ADOPTION:

  • EU: Mandatory for most transactions (PSD2/SCA)
  • US: Optional, growing adoption
  • High-risk merchants: Essential for chargeback protection

Question 12: Network Violation Consequences​

What is the MATCH list, and why is placement on it so severe?

Click to see answer

Answer:

MATCH = Member Alert to Control High-Risk Merchants

WHAT IT IS:

  • Payment industry's blacklist for terminated merchants
  • Operated by Mastercard but affects all networks
  • Shares information about merchants terminated for cause
  • Typically lasts 5+ years (can be permanent)

WHY IT'S SEVERE:

Once MATCH-listed, a merchant:

  • Cannot get a new merchant account at any processor
  • Cannot accept card payments for business
  • Faces extreme difficulty starting new businesses
  • Suffers reputational damage that extends beyond payments
  • May affect banking relationships (even non-payment accounts)

COMMON MATCH LISTING REASONS:

Reason CodeDescriptionRecovery Difficulty
01Account Data Compromise (breach)Very Difficult
04Excessive ChargebacksModerate
05Excessive FraudDifficult
07Fraud ConvictionVery Difficult
12PCI-DSS Non-ComplianceModerate
13Illegal TransactionsVery Difficult

GETTING OFF THE LIST:

  • Submit written request to acquirer who listed you
  • Provide evidence of remediation
  • May require third-party attestation
  • Acquirer decides whether to remove (most don't)
  • Success rate is very low (< 5% for fraud/breach, 20-30% for chargebacks)

REAL-WORLD IMPACT:

For many businesses, MATCH listing = business closure. Modern businesses cannot operate without card acceptance, making this effectively a death sentence for the business and often the owner's ability to start new payment-related businesses.

PREVENTION:

  • Keep chargeback ratio < 0.5%
  • Maintain PCI compliance
  • Implement fraud prevention
  • Respond to disputes promptly
  • Monitor for violations proactively

Question 13: Network Fee Negotiability​

Which components of merchant fees are negotiable and which are fixed?

Click to see answer

Answer:

FEE BREAKDOWN ($100 TRANSACTION):

ComponentAmountSet ByNegotiable?
Interchange$1.80Card networks❌ NO
Assessment$0.16Card networks❌ NO
Passthrough fees$0.04Card networks❌ NO
Acquirer markup$0.54Acquirer/processor✅ YES

NON-NEGOTIABLE (78-80% of total):

  1. Interchange ($1.80)

    • Set by Visa/Mastercard
    • Published in official rate schedules
    • Changes April and October
    • Same for all acquirers
    • Varies by 300+ categories

  2. Assessment ($0.16)

    • Network fees for infrastructure
    • Published by networks (0.13-0.15%)
    • Applies to all transactions
    • Same for all acquirers

  3. Passthrough Fees ($0.04)

    • APF, NABU, authorization fees
    • Fixed by networks
    • Cannot be waived
    • Same for all acquirers

NEGOTIABLE (20-22% of total):

Acquirer/Processor Markup ($0.54)

  • This is the ONLY negotiable component
  • Acquirer's profit margin
  • Can range from 0.1% to 1.5%+
  • Based on:
    • Merchant volume (higher = better rates)
    • Risk profile (lower risk = better rates)
    • Industry (low-risk verticals get better rates)
    • Negotiating power

NEGOTIATION LEVERAGE:

Merchant ProfileTypical MarkupBest-Case Markup
High-volume ($10M+), low-risk0.30% - 0.50%0.10% - 0.25%
Medium-volume0.40% - 0.70%0.30% - 0.50%
Low-volume0.70% - 1.50%0.50% - 1.00%
High-risk1.00% - 2.50%0.75% - 1.50%

WHAT MERCHANTS SHOULD DO:

  • Ask for interchange-plus pricing (transparency)
  • Negotiate the processor markup (0.2% - 0.5% is competitive)
  • Avoid "bundled" pricing that hides interchange
  • Get multiple quotes to create competition

REALITY: Most merchants overpay on the markup because they don't understand that 80% of fees are non-negotiable.

Question 14: International Transaction Fees​

Why are cross-border transactions significantly more expensive than domestic transactions?

Click to see answer

Answer:

Cross-border transactions include additional fees beyond domestic interchange:

FEE STACK FOR CROSS-BORDER:

Domestic fees:                    ~2.5%
+ Cross-border assessment:        0.40% - 1.00%
+ Currency conversion:            0.20% - 0.30%
+ International service fee:      0.20% - 0.40%
─────────────────────────────────────────
Total cross-border:               3.3% - 4.2%
(Plus higher interchange if premium card)

WHY THEY COST MORE:

  1. Currency conversion risk - Foreign exchange rate volatility creates risk for networks and processors

  2. Higher fraud risk - International fraud is harder to detect and pursue legally

  3. Regulatory complexity - Different laws, regulations, and compliance requirements in different countries

  4. Settlement complexity - Moving money between countries requires correspondent banking, FX conversion, multi-day settlement

  5. Limited recourse - Harder to recover losses internationally, pursue fraudsters across borders

  6. Data localization - GDPR and other regulations require additional infrastructure

ADDITIONAL CONSIDERATIONS:

  • Different interchange schedules by region - EU caps interchange at 0.2% (debit) / 0.3% (credit) while US has no caps
  • Strong Customer Authentication (SCA) in EU requires 3D Secure
  • Multi-currency accounting complexity for reconciliation
  • Cross-border chargeback timelines can be longer

REAL EXAMPLE:

US merchant processes €100 from German customer:

Interchange (EU cap):      0.30%  = €0.30
Assessment (Visa):         0.14%  = €0.14
Cross-border fee:          0.90%  = €0.90
Currency conversion:       0.30%  = €0.30
International service:     0.40%  = €0.40
Acquirer markup:           0.50%  = €0.50
─────────────────────────────────────
Total fees:                2.54%  = €2.54

Converted to USD at €1 = $1.10:
Merchant receives: $110 - $2.79 = $107.21
Effective fee rate: 2.54% (plus FX margin)

OPTIMIZATION STRATEGIES:

  • Local acquiring in high-volume markets (process as domestic)
  • Multi-currency pricing (let customer choose currency)
  • Evaluate DCC (Dynamic Currency Conversion) carefully
  • Understand regional interchange differences

Question 15: Interchange Downgrade Triggers​

What causes interchange downgrades, and how can merchants avoid them?

Click to see answer

Answer:

INTERCHANGE DOWNGRADES occur when transactions don't meet qualification requirements, resulting in higher interchange rates.

COMMON DOWNGRADE TRIGGERS:

IssueImpactRate Penalty
No CVV provided (CNP)Downgrades to higher tier+0.20% - 0.40%
AVS No Match (N)Downgrades+0.15% - 0.30%
Late capture (>7 days)Downgrades to non-qualified+0.30% - 0.50%
Missing Level 2/3 dataCommercial cards downgrade+0.40% - 0.70%
Card swiped (chip available)Downgrades+0.20% - 0.40%
Batch after 72 hoursNon-qualified rate+0.50% - 1.00%

QUALIFICATION TIERS:

QUALIFIED (Best rates):

  • CVV match (CNP)
  • AVS full match or partial
  • Capture within 24 hours
  • Chip read (CP)
  • All required data present

MID-QUALIFIED (Medium rates):

  • AVS partial match
  • Capture within 24-72 hours
  • Some data missing
  • Manual entry (keyed)

NON-QUALIFIED (Highest rates):

  • No CVV (CNP)
  • AVS no match
  • Capture after 72 hours
  • Swiped when chip available
  • Missing critical data

COST IMPACT EXAMPLE:

$100 transaction:
- Qualified:        $1.43 + $0.05 = $1.48
- Mid-Qualified:    $1.95 + $0.10 = $2.05
- Non-Qualified:    $2.30 + $0.10 = $2.40

Difference: $0.92 (62% higher cost for non-qualified)

HOW TO AVOID DOWNGRADES:

  1. Always request CVV for CNP transactions
  2. Always request billing address for AVS matching
  3. Batch daily before cutoff (typically 5-6 PM EST)
  4. Capture promptly after authorization (within 24h)
  5. Use chip reader when chip card is present (never swipe)
  6. Collect Level 2/3 data for B2B/government sales
  7. Ensure data completeness before submitting batch

LEVEL 2/3 DATA BENEFITS:

For commercial/corporate cards, providing detailed data can SAVE significantly:

$10,000 B2B transaction:
- Without Level 3 data: $250 (2.50%)
- With Level 3 data:    $200 (2.00%)
- Savings:              $50 per transaction

Annual impact (100 transactions): $5,000 saved

MONITORING:

  • Review monthly statements for downgrade fees
  • Track qualification ratios
  • Identify patterns causing downgrades
  • Adjust processes to improve qualification

Scoring Guide​

  • 13-15 correct: Expert level - You understand card networks deeply
  • 10-12 correct: Proficient - You grasp the key concepts
  • 7-9 correct: Intermediate - Review the detailed documentation
  • 0-6 correct: Beginner - Start with the overview and work through each section

Next Steps​

Based on your quiz results:

If you scored well:

If you need review:

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