What do Visa and Mastercard do? An intro to card networks
21 days ago
- Visa and Mastercard are card networks that facilitate transactions by connecting cardholders and issuers to merchants and acquirers, but they do not issue cards, act as banks, or handle merchant acquiring.
- Their four core responsibilities: run the telecommunications network for routing transaction messages, coordinate the banking network for settlement, set incentives through fees, and enforce network rules including dispute resolution.
- The network operates secure data centers and handles authorization and clearing messages, and manages net settlement between participants, including international currency conversion.
- Fees are structured with interchange fees (mostly to issuing banks) and network assessment fees (to Visa/Mastercard), which incentivize behaviors like secure payments and business spending.
- Networks provide detailed rules (e.g., Visa Core Rules) and a dispute resolution mechanism (arbitration) for chargebacks, which encourages transactions but can lead to issues like friendly fraud.