What are credit card networks, and how do they operate?

Credit card networks are global electronic payment systems that facilitate transactions between merchants, cardholders and banks. They’re also referred to as card associations. They operate in the background when you make transactions. In India, the major credit card networks include Visa, Mastercard, American Express (Amex), Rupay and Diners Club.

Let’s say, you have the HDFC Bank credit card with a Mastercard logo on it. Then, HDFC Bank is the credit card issuer and Mastercard is your credit card network. In some cases, credit card networks are also credit card issuers, like Amex.

How do credit card networks work?

Credit card networks were developed to ensure secure and efficient transactions, promoting consumer spending and providing an alternative to cash. They act as intermediaries between the issuing bank (the customer's bank) with the acquiring bank (the merchant's bank) and process payments.

When you make a transaction, your card’s network links the acquiring bank with the issuing bank to verify that the card details are accurate and whether the customer has enough balance for the payment or not. These transactions can be made in many ways, like from the business's point of sale (POS) terminal, card reader or digitally.

Once authenticated, the issuing bank sends the money to the acquiring bank. Then, the acquiring bank notifies the merchant about the successful payment status. In case the payment fails, both banks are notified.

There are open and closed credit card networks:

Do credit card networks charge separate fees?

Credit card networks charge transaction fees from the cardholders, varying from network to network. Interchange fees are charged between banks for processing the payments. When a customer uses a credit card at a merchant’s store, the acquiring bank (merchant’s bank) pays a fee to the issuing bank (cardholder’s bank). There is also an assessment fee, which is paid by businesses to the credit card network for using their services when processing credit card transactions.