Card Networks Flashcards
Schemes - Function (High Level)
The card networks’s job is to pass information from the merchant acquirer to the issuer and vice versa
The card networks set the rules for both merchant acquirers and issuer’s
The network provides infrastructure, the rules for how parties interact, and aggregates funds so not every issuer has to talk to every acquirer
Open Card Networks
They will have relationships with multiple Merchant Acquirers and multiple Issuers
Responsibilities of open card networks
- Rule setting
- Fee setting
- Managing membership in the network
- Dispute management
- They are performing net settlement on behalf of all of those participating banks daily (clearing house function)
Closed Card Networks
They issue their own cards, are their own bank, and typically provide their own acquiring services
Visa & MasterCard Strategy
Visa and MasterCards strategy is about getting as many cards out there as possible and making sure these cards are accepted in as many places as possible
- Acquirers and issuers are marketing vehicles and distributors for the card networks
- The Issuers are responsible for getting more cards in the hands of users
- The acquirers are responsible for getting as many card terminals and payment gateways in the hands of merchants so they can accept card payments
Importance of card networks
Without the networks each bank would have to deal with each merchant to get their cards accepted
Card networks save banks the hassle of onboarding each merchant and maintaining the infrastructure
Swipe Volume & Revenue: Amex vs Visa
Their revenue per swipe is significantly higher than Visa and MasterCard
Their total swipe volume is significantly lower than Visa and MasterCard
Because they do not have a network of Issuers and Acquirers getting their cards or card terminals into the market on their behalf
Main role of networks
Information sharing.
When you swipe your card at a POS machine, how does your credit card issuer know which merchant to transfer the money to?
Why is AMEX revenue so high?
- Biggest share of payment fee goes to the Issuer
- American Express issues its own cards to customers. It acts as an Issuing Bank as well as the card network
AMEX Strategy
Amex’s whole main strategy revolves around getting customers to spend on its cards.
Amex earns substantial revenues from annual fees. Amex invests these revenues in incentive programs and offers for customer. This leads to higher revenues for merchants and higher transactions.
Dual Message Systems
Separate the authorization message from the capture/ clearing message
Single Message System
Here, the transaction directly enters the clearing process upon real time authorization
PIN-Based Transaction
A PIN debit transaction occurs when we, the customer, enter our personal identification number or PIN to make the transaction
Processing the debit card as a PIN causes the transaction to route through the debit network instead of the credit card network
Different Fees
“If you are using a Visa Debit card from Bank of America, when it runs on the VisaNet ‘Credit’ network, the Interchange is higher, whereas, in the ‘Debit’ mode running on the Interlink network, the Interchange will be lower”
Routing definition
Routing is the process of choosing the least cost debit network to route each debit transaction
A debit card will have multiple competing networks available to route the transaction, and card networks can differ vastly in the pricing structures they offer on a per-transaction basis
