Card networks

Customer

Customers initiate the transaction and purchase the goods or services from a merchant. A customer in a payment transaction can be an individual, or a business who is purchasing from one of their vendors.

Merchant

A merchant is the entity that is selling a good or service to a customer. Customers and merchants share similar personas, in that a merchant can also be an individual or a business.

Issuing bank

Issuing banks provide debit and credit cards to customers. They also authorize card payments and settle funds to acquiring banks, and they send the payment on behalf of the customer. Examples of issuing banks include Chase and other financial institutions that issue cards to their customers.

Acquiring bank

The acquiring bank in a payment receives the payment on behalf of the merchant. Chase is also an example of an acquiring bank.

Payment network

Payment networks facilitate transactions and the transmission of data between the various parties involved in a transaction. There are a few well known payment networks:

Card networks

• Visa

• Mastercard

• American Express

• Discover

Non-card networks

• Automatic Clearing House (ACH)

• Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Payment processor

Payment processors are financial institutions or third-party companies that handle the processing of payment transactions on behalf of merchants. For example, a payment processor can be the entity that sends the transaction information over to a payment network and handles that process for the merchant.

Payment card networks

Credit card and debit card networks provide communications, transaction authorisation and interbank financial settlement for financial institutions. Payment card networks establish uniform operating policies, procedures and controls. Some major networks are publicly traded companies. The largest credit card and signature-based debit card networks in the United States are Visa and MasterCard. American Express and Discover are also major card networks. There were also several smaller debit card networks operating in the United States during 2010.

3.3.3.1 Operation of payment card networks Credit card and debit card networks sort and route transaction data from acquiring banks to issuing banks over proprietary networks. The networks generally settle on a net basis with the acquiring and issuing banks daily, although typically with a one- or two-day lag between payment initiation and settlement. Generally, the networks use the acquiring and issuing banks’ aggregated transaction information to compile each bank’s net settlement position. Member banks may be required to maintain collateral with the networks’ settlement banks to manage default risks. Acquiring and issuing banks may settle directly with each other, through regional settlement banks or through the Federal Reserve or by other net settlement arrangements. The settlement process can vary significantly, depending upon the banks involved.

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RESOURCES

https://www.idfcfirstacademy.com/blogs/advanced/cards/what-is-a-card-network

https://www.bis.org/cpmi/publ/d105_us.pdf

https://economics.princeton.edu/wp-content/uploads/2023/01/Wang_jmp.pdf

https://developer.payments.jpmorgan.com/blog/guides/understanding-payments

https://www.federalreserve.gov/pubs/feds/2009/200923/index.html