Types of credit card networks
Now that you know what a credit card network is, and how it's different to a credit card issuer, let's get onto the different types of credit card networks out there. These include:
Open card network
Open credit card networks let other financial institutions issue their credit cards to customers. The two most popular open credit card networks are Mastercard and Visa.
Closed card network
On the other hand, a closed credit card network is a credit card company that exclusively issues credit cards. The credit card network also acts as the acquirer and disburses your customer's funds directly to your company's banks, excluding the transaction fees. Some popular closed networks are American Express and Discover.
How do credit card networks work?
Credit card networks connect the card issuer and the business for credit card purchases. Here's how they work:
The customer’s transaction starts at the payment terminal
The customer uses their credit card at your business's payment terminal by swiping, inserting, tapping, or entering the card number into your card machine.
The payment processor connects with the credit card network
Once your customer's used their credit card, your credit card machine or terminal sends the card info to the payment processor, which then contacts the credit card network for approval.
- If the network is the card issuer: The network decides if the transaction is approved or not.
- If there's a separate card issuer: The network checks with the issuing bank for approval.
The credit card network contacts the credit card issuer for transaction approval
The credit card network quickly tells the business if the transaction is approved or denied, usually this decision is made within seconds.
Processing fees of major credit card companies
Credit card networks charge different fees for each transaction, which is a major factor for businesses when choosing which networks to accept.
Types of credit card fees - opportunity to link back to how to accept credit card payments piece
When a business accepts credit card payments, they'll have to pay two main types of fees for every credit card transaction: interchange fees and assessment fees.
- Interchange fee: The acquiring bank charges interchange fees. For example, if Wells Fargo issued a customer's Mastercard, the business pays an interchange fee to Wells Fargo whenever that card is used.
- Assessment fee: The credit card network charges the assessment fee. So, for the same Wells Fargo-issued Mastercard, the assessment fee goes to Mastercard on every purchase.
