Credit Card Networks: Everything You Should Know

What is a credit card network?

Credit card networks help facilitate the movement of money via credit cards, essentially acting as the communication between issuing banks/credit card companies and businesses to process credit card transactions. When you use a credit card to buy something in a store or online, the credit card network will get the transaction authorized – they will approve the transaction, or they might deny it if there’s not enough credit or the purchase looks suspicious.

Major credit card networks include:

• Visa
• Mastercard
• American Express
• Discover

You can find the credit card network logo on the front or back of a credit card.

Each of these networks, also called card associations, work a little differently, but the basic concepts are very similar.

How do credit card networks work?

When you use your credit card to make a purchase, several things happen behind the scenes to allow that transaction to be processed.

First, when you’re in the checkout, you’ll swipe your credit card or insert the chip (also known as an EMV) in the point-of-sale machine. It’s at this point that the credit card terminal will talk to the credit card network to see if the transaction should and can be approved.

So for example, say you’re paying with a Chase credit card at a local restaurant. The card issuer is Chase, the card network is Visa, and the merchant is the restaurant. The restaurant’s credit card machine would contact Visa, which then talks to Chase. Chase will approve or deny the charge, and then Visa tells the merchant the decision.

Important note: Not all merchants that accept credit cards will accept credit cards from all networks. For example, a store may not take American Express or Discover. Make sure you understand which credit card networks a store accepts before checking out, and keep this in consideration when choosing a new credit card to apply for.

Bottom line, a card network is one of the underlying links that work to transfer funds from you, the cardholder, to the merchant.

Types of credit card networks

When you start to dive into how credit card networks operate, there are two major types of networks to note:

1. Open network

Open networks, like Visa and Mastercard, work with issuers to issue credit cards. They allow many financial companies to participate. For example, you can get a Visa credit card from Chase, Wells Fargo, Capital One, Bank of America, and others.

2. Closed network

With a closed network, the credit card network also acts as the acquirer or bank that pays the merchant the amount of the credit card transaction (minus any fees). Examples include American Express and Discover. While some closed networks like these are very large and pretty widely accepted, others are relatively small.

For example, some store-issued credit cards operate on closed networks and you can only use that card at the store or company that issued the card. For example, the My Best Buy credit card which can only be used at Best Buy, or JCPenney credit card which can only be used at JCPenney.

Things cardholders need to know about credit networks

There are a few things that may vary for you depending on your credit card network:

1. Fees

Credit card networks often charge credit card processing fees (also called interchange fees). Not only can the amount of these fees vary, but they are one of the reasons merchants may not accept every credit card network. Sometimes these fees are more than the merchant wants to pay, so they might not accept the network or they may ask the consumer to pay the fee.

It’s important to know which credit card networks are accepted by the stores and restaurants you frequent the most, especially if you only have one credit card.

2. Fraud protection

Typically, credit card networks will help detect credit card fraud and put security measures in place to protect cardholders. They will work with customers who face fraud from unauthorized purchases and often offer liability protection, meaning you’re not liable for purchases you didn’t make. Read the card’s terms and conditions to learn about how you’re protected.

Credit card network fees

As mentioned, credit card networks charge different fees for each transaction, and they are usually the most important factor that businesses consider when deciding which credit card networks to accept. There are two main types of fees that businesses will pay on every transaction:

1. Interchange fee

The institution that issued the credit card will charge an interchange fee, or fee for processing the transaction. For example, if Chase issued a consumer’s Visa card, the business would pay an interchange fee to Chase whenever the customer uses that card to make a purchase.

2. Assessment fee

Businesses will also pay an assessment fee, which is charged on the total of your monthly sales for each credit card brand and paid entirely to the credit card networks. These are also called “swipe fees.” So on the same Chase-issued Visa, the assessment fee on each purchase goes to Visa.

Why do we need a credit card network?

Credit card networks build and maintain the technology behind credit card authorization and payment processing. They talk to the card issuers and banks to help purchases go through. Without them, consumers wouldn’t be able to complete credit card transactions in stores or online.

Difference between credit card network and credit card issuer

While credit card networks help facilitate the transfer of information to complete a transaction, credit card issuers are the companies that offer credit cards to businesses and consumers. The card issuer determines things like:

• Who qualifies for a credit card
• The card’s fees
• Rewards
• Other benefits/perks offered to cardholders

They also determine whether to lend you the money to buy something.

When you have a credit card, you’ll primarily deal with the card issuer (not the card’s network) when you do things like:

• Pay your bill
• Freeze your card or report it missing
• Redeem rewards

The card issuer will also report the account’s status to the credit bureaus.

There are some instances when a company can be both a card network and a card issuer, like American Express and Discover. However, Visa or Mastercard are only credit card networks, so if you want one of these credit cards, you’ll need to apply for one through another financial institution (issuer) like Chase, Citi, Bank of America, or Capital One.

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