What is a credit card network?

Definition of Credit Card Networks

A credit card network authorizes, processes, and establishes the terms of credit card transactions, as well as facilitates payments between shoppers, merchants, and the banks involved. The main credit card network is responsible for approving and processing credit card transactions. These networks transfer information between acquiring banks and issuing banks to facilitate transactions. There are four main credit card networks, and the network your card operates on determines where you can make transactions using your credit card.

How Credit Card Networks Work

When you swipe, dip, or tap your credit card to purchase an item in a store, or when you enter your card number online, you are requesting your card issuer to pay the merchant, but that payment must first pass through the credit card network.

Credit card networks exchange information between the merchant’s acquiring bank and the card’s issuing bank (the financial institution that issued you the card on behalf of a network like Mastercard or Visa) to determine whether you can make a purchase and to facilitate the process.

Types of Credit Card Networks

Four major companies operate as credit card networks to process payments:

– Visa: This is a payment network only; it does not issue credit cards directly to consumers, although you will see the Visa logo on many cards to recognize the company’s association with the card’s payment network. Visa also oversees the benefits of Visa Signature associated with certain credit cards, such as luxury rental car perks and hotel benefits.

– Mastercard: This is also a credit card-only network, but it has a specific suite of card protections and benefits such as identity theft protection and extended warranties.

– American Express: American Express is both a credit card network and an issuer that issues credit cards and processes payments for cards bearing its logo. It also offers benefits to cardholders, such as travel insurance.

– Discover: This is a credit card network and issuer that offers benefits such as secondary insurance on rental car collisions.

Retail credit cards may operate on their own credit card networks, limiting you to making purchases using your card only at those stores.

What Credit Card Networks Mean for You

The payment network your card operates on is important because merchants are not required to accept credit cards from every payment network. A grocery store or gas station may accept Mastercard or Visa but not accept American Express or Discover cards. If you travel, the card networks abroad may differ from those you are accustomed to in the United States. If you regularly spend at the same merchants or have multiple credit cards operating on different card networks, this may not be an issue, but if you plan to travel outside the United States and you have cards from only one network, such as American Express, be sure to check the acceptance location maps on the card network’s website.

Acquiring banks incur interchange fees and other charges for processing card payments, so merchants sometimes choose to accept credit card networks based on cost. Fees vary, but some networks are more expensive for merchants to use than others. For example, American Express tends to charge higher fees than its competitors. If a merchant is closely monitoring the financial side, they may choose to accept payments only on credit card networks with lower fees, which may be convenient for the merchant but could be inconvenient for you.

Source: https://www.thebalancemoney.com/what-is-a-credit-card-network-4775633