As of December 2023, when making a digital purchase, US consumers are most likely to pay by credit (70%) or debit card (60%), per an EMARKETER and Bizrate Insights survey. EMARKETER analysts believe issuers will need to be mindful of regulations that require transparency to help consumers switch to cards with better service or terms and encourage competition between primary card issuers. To court consumers at a time when debt is high and repayment is a stressor for many, credit issuers should consider promotional campaigns that emphasize the value and low cost of their cards. A mainstay in consumers’ wallets since the late 1950s, the credit card has undergone a number of transformations, from cardboard to plastic and from chip-enabled to the rise of digital, contactless payments. There are various fees taken by the card network and other parties in the payment flow when processing a payment. Let’s take a look and explore the role of card networks in the payment lifecycle.
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US household credit card debt reached $1.12 trillion in Q1 2024, 13.1% higher than the same period last year per the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. Baby boomers (76%) are more likely to have at least one credit card account, followed by millennials (70%) and Gen Xers (63%). However, all three generations’ credit card debt hoovers around the 40% average. Next, the physical or online payment terminal passes the payment information and request onto the payment gateway for verification. They also set transaction terms, which are another key element of the payment processing chain. Safe, secure payments and top-ups that anyone can use, with instant settlement.
Instant payment networks operate on specific payment rails, which are the underlying infrastructure and protocols that facilitate the transfer of funds. In the UK, FPS uses the New Payments Architecture (NPA), while SCT Inst relies on the SEPA Instant Credit Transfer scheme. These rails enable the rapid and secure movement of money between accounts, bypassing traditional intermediaries and lengthy processing times. The payment terminal or gateway sends an authorization request to the payment processor, which forwards it to the card network (such as Visa or Mastercard). Payment networks are the backbone of modern commerce, facilitating the seamless exchange of value between businesses and consumers. Understanding these complex systems is crucial for businesses of all sizes, as they directly impact cash flow, revenue, and customer experience.
A payment system is any system used to settle financial transactions through the transfer of monetary value. Stripe supports all the major global credit card networks in addition to smaller, regional networks. Credit card networks can also be credit card issuers, meaning they extend credit to cardholders without requiring a third-party financial institution to act as the issuer. Visa, Mastercard, Discover, and AmEx also form the PCI Security Standards Council (SSC) alongside Japan’s JCB International. The PCI SSC acts as an authority in the payments industry, regulating and enforcing the PCI Data Security Standard (DSS) to protect cardholder information. The rules set by this consortium are not guidelines, but the ground-rules participants must abide by in order to participate in card-payments.
The advantages for payment solution providers offering payment terminals that support both international payments and national payment networks is that they benefit an extended deployment market. Moreover, financial institutions and banks also drive the adoption of local payments systems. A card network, such as Visa or Mastercard, is primarily responsible for the technical infrastructure and processing of card transactions. It manages the routing of transactions to reach the appropriate banks and facilitates the exchange of payment information.
They act as the critical link between issuing banks and merchant acquirers in the payment processing ecosystem. They profit from charging cardholders fees on interest, late payments, foreign exchange, and processing fees and more. The fundamental distinction between card networks and card issuers is their respective roles in the payment process. Card networks typically cover both credit card transactions and debit card transactions. Stripe supports all major global credit card networks, in addition to regional networks such as Cartes Bancaires in France and alqo.app Interac in Canada.
The privilege for merchants to accept plastic instead of cold hard cash comes at a cost. Fees are tacked on to every transaction made on a payment network, which are levied by payment networks, processors, and issuers. According to Forbes, the average credit card processing fee ranges between 1.5% to 3.5%+ of the transaction value. At the end of the business day, the merchant sends a batch of approved transactions to the payment processor for settlement. The payment processor forwards these transactions through the card network to the respective issuing banks. The issuing banks then transfer the funds to the acquiring bank (the merchant’s bank), minus any fees, completing the settlement process.
Instant payments combined with account verification, ideal for regulated businesses. Payment networks are designed to support cross-border transactions, enabling global trade and commerce. Once the merchant receives the approval, the transaction is completed, and the customer receives a confirmation, either in the form of a receipt or an on-screen message. At this stage, the funds are placed on hold in the customer’s account but have not yet been transferred to the merchant. Accept payments online, in person, and around the world with a payments solution built for any business—from scaling startups to global enterprises.
While the card processing networks establish a smooth infrastructure for card payments, they also make requirements of the other players, principally to ensure a safe-processing environment for cardholders. For many years, accepting payments from one or many payment networks was a hassle — but the credit and debit card business was still a backseat to cash. We now live in a world which spends on plastic and many merchants now support all four major payment networks. For example, American Express and Discover, both operate as card networks and card issuers. They issue their own credit and debit cards directly to customers under their own brand. For a more detailed take on what happens in a card transaction – and the role payment networks play – explore our guide to how to accept credit card payments.
Fees are usually the most important factor that businesses consider when deciding which credit card networks to accept. A payment network – also called a payment card network or payment processing network – facilitates digital transactions between businesses and their customers. Think Visa, Mastercard, and American Express, the three most widely used payment networks in the world and in Singapore as well. These payment networks act as a communication system through which digital transactions are accepted, authorised, verified, and approved.
Instead, they work with member banks to ensure everyone follows their card brand’s rules and maintains consistent standards. This entire process typically takes just a few seconds, allowing for near-instant transfer of funds between accounts. Payment networks protect transactions using multiple layers of security, including tokenisation, real-time monitoring, and secure authentication protocols. The emergence of payment networks Central Bank Digital Currencies (CBDCs) has the potential to reshape the global payment landscape. These digital currencies, issued by central banks, could offer greater efficiency, financial inclusion, and control over monetary policy. While still in its early stages, countries like China and Bahamas are at the forefront of CBDC development.
With various types of networks, such as credit card, EFT, P2P, and ATM networks, each offering unique functions and benefits, businesses must choose wisely based on their needs. Remember, as technology evolves, the future of payment networks promises even greater convenience, security, and innovation. When a customer initiates a transaction, whether online or in-store, the payment network is activated.
This article explores the fundamental concepts of payment networks, their key players, and the role they play in the global economy. To connect to a card processing network, merchants need the right mix of POS systems, payment processors, and payment gateways. In the age of digital payments, reliable payment processors and payment gateways are particularly important for a seamless payment solution. Used by almost 90 million people, PayPal, which syncs to a consumer’s bank account, allows for seamless payments because the need to enter debit or credit card information for each transaction is eliminated. With PayPal, consumers’ payment information is stored and securely shared with merchants online. Card networks work by facilitating the connection and communication between the main financial institutions involved in the payments process.
Common payment networks include SWIFT, which facilitates international bank transfers, and blockchain-based systems, known for offering decentralized and transparent transaction ledgers. Payment systems may be physical or electronic and each has its own procedures and protocols. Standardization has allowed some of these systems and networks to grow to a global scale, but there are still many country-specific and product-specific systems. Examples of payment systems that have become globally available are credit card and automated teller machine (ATM) networks. Domestically this is accomplished by using Automated clearing house (ACH) and real-time gross settlement (RTGS) systems. Internationally this is accomplished by correspondent banking (possibly using the SWIFT network) or a more centralised system like the CLS settlement system.
Of these, Visa and Mastercard – which, collectively, lay claim to around 87% of the global credit card market share – are ‘open’ networks, while American Express and Discover are ‘closed’ networks. The difference is that in open networks, third parties can issue credit cards to consumers on the network’s behalf; while in closed networks, credit card companies must issue the card directly to the customer. Morgan to provide global payment processing services for clients including consumers, small businesses, commercial, and debit card services. Real-time gross settlement systems (RTGS) are funds transfer systems where the transfer of money or securities takes place from one bank to another on a « real-time » and on « gross » basis. Settlement in « real time » means that payment transaction does not require any waiting period.