Credit card networks: What are they and how do they work?

When you use your credit card or a digital wallet to make a purchase, a credit card network goes to work behind the scenes. In seconds, it connects your card issuer and the merchant’s bank to process the transaction.

In general, credit card networks manage the systems needed for credit card transactions. But there’s plenty more to understand.

What you’ll learn:

• Credit card networks help facilitate credit card payments between merchants and card issuers.
• The four major U.S. credit card networks are American Express®, Discover®, Mastercard® and Visa®.
• Credit card networks have a hand in processing fees, fraud protections and card benefits.
• Processing fees may influence which credit card networks merchants accept.

Credit card networks build and maintain the technology behind credit card authorization and payment processing. These networks connect card issuers and banks to help make purchases possible. For example, the network must check with the issuing bank to make sure there’s enough available credit to approve the purchase.

American Express, Discover, Mastercard and Visa are the four major credit card networks in the U.S. The credit card network logo can usually be found on the front or back of a credit card.

Credit card issuers are financial institutions that supply credit cards. Credit card networks run the technology that processes the card payments—among other functions. In other words, the credit card issuer is the one you’ll be paying back for your purchases. For example, Capital One is a credit card issuer that works with the networks Mastercard and Visa.

Credit card issuers and networks are usually separate entities. But there are two exceptions—American Express and Discover. These credit card networks also issue credit cards. And they’re referred to as closed credit card networks.

Networks that also issue cards act as the acquirer, which means they process the transactions and also pay the merchant for what’s owed for each transaction, minus any fees.

To better understand how credit card payment networks work, it may help to look at an example transaction.

Let’s say you’re filling up your car at the gas station. Here’s how a credit card network makes the purchase happen:

1. Using a card or digital wallet, you tap, swipe or insert a credit card at the gas pump or inside the store at the register. 
2. The gas station’s point-of-sale (POS) system reads your card information and sends it to the gas station’s bank—called the acquiring bank—to request a charge.
3. The acquiring bank sends the request to the credit card network.
4. The credit card network contacts the card issuer to authorize and approve the transaction.
5. If the card issuer approves, the credit card network gives the go-ahead to the POS system and charges a processing fee.

There are a couple of things that might vary depending on your credit card network.

• Processing fees: Credit card networks often charge credit card processing fees—or interchange fees. Merchants might not accept every credit card network.
• Fraud protection: Credit card issuers usually work with customers who face credit card fraud from unauthorized purchases. But credit card networks are also part of the process. They help detect credit card fraud and put security measures in place. They also often offer liability protection. 
• Extra benefits: Depending on the credit card, issuers and networks might work together to provide extra benefits. Rental car insurance, travel insurance and extended warranty protection are examples of network benefits.

Credit card networks work with credit card issuers and merchant banks to process cardholder transactions quickly and securely. It helps to know which credit card network is linked to your card—just check the logo on the front or back.

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