Card scheme: Difference between revisions

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{{Short description|Payment networks linked to payment cards}}

{{more citations needed|date=July 2021}}

'''Card schemes''' are payment networks linked to [[payment cards]], such as debit or [[credit card]]s, of which a [[bank]] or any other eligible [[financial institution]] can become a member. By becoming a member of the scheme, the member then gets the possibility to issue cards or [[Acquiring bank|acquire]] merchants operating on the network of that card scheme.<ref name="4CornersmodelRupp">{{cite web |last1=Rupp |first1=Martin |title=Cardholder, Merchant, Issuer & Acquirer - The Four Corners Model for Payment Security and Key Management |url=https://www.cryptomathic.com/news-events/blog/cardholder-merchant-issuer-acquirer-the-four-corners-model-for-payment-security-and-key-management |publisher=Cryptomathic |date=April 22, 2021}}</ref><ref name="Fédération Bancaire Française">{{cite web |last1=Études et activités bancaires et financières |title=An interbank payment card system for the benefit of all |url=http://www.fbf.fr/en/files/94VLEX/Interbank-payment-card-system-24012013.pdf |publisher=Fédération Bancaire Française |date=January 2013 |access-date=2021-05-17 |archive-date=2013-09-25 |archive-url=https://web.archive.org/web/20130925005126/http://fbf.fr/en/files/94VLEX/Interbank-payment-card-system-24012013.pdf |url-status=dead }}</ref>

[[UnionPay]], [[Visa Inc.|Visa]] and [[Mastercard|MasterCard]] are three of the largest global brands, known as card schemes, or card brands. Billions of transactions<ref name="Number of purchase transactions 2020">{{cite web |last1=de Best |first1=Raynor |title=Number of purchase transactions on global general purpose card brands |url=https://www.statista.com/statistics/261327/number-of-per-card-credit-card-transactions-worldwide-by-brand-as-of-2011/ |publisher=Statista |date=July 2021}}</ref> go through their cards on a yearly basis.

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[[File:card schemes3.jpg|thumb]]

A three-party scheme consists of three main parties, as described in the adjacent diagram.

In this model, the issuer (having the relationship with the cardholder) and the acquirer (having the relationship with the merchant) isare the same entity. This means that there is no need for any charges between the [[card issuer|issuer]] and the [[card acquirer|acquirer]]. Since it is a [[franchising|franchise]] setup, there is only one [[franchisee]] in each market, which is the incentive in this model. There is no [[competition]] within the brand; rather, you compete with other brands.

Examples of this setup are [[Diners Club]], [[Discover Card]], and [[American Express]], although in recent times these schemes have also partnered with other issuers and acquirers in order to boost their circulation and acceptance, and Diners Club now operates as a four-party scheme in many regions.<ref>{{Cite web |last=Laurer |first=Christoph |date=2022-03-10 |title=How Online Card-Based Payments Function |url=https://trimplement.com/blog/2022/03/online-card-based-payments/ |access-date=2023-05-24 |website=trimplement blog |language=en-US}}</ref>

===Four-party scheme===

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[[File:card schemes4.jpg|thumb|left]]

In a four-party scheme (also referred to as [[Four Corners Model for Payment Security|Four Corners Model]]), the issuer and acquirer are different entities, and this type of scheme is open for other institutions to join and issue their own cards. This is the type of card scheme used by [[brand]]s such as [[Visa Inc.|Visa]], [[Mastercard]], [[Verve Card]], [[UnionPay]] and [[RuPay]]. There are no limitations as to who may join the scheme, as long as the requirements of the scheme are met.

==Processes==

The card scheme utilizesuses the respective [[guideline]]s<ref name="Mastercard Rules">{{cite web |last1=Summary of changes 2020 |title=Mastercard card scheme - Rules and guidelines |url=https://www.mastercard.us/content/dam/mccom/global/documents/mastercard-rules.pdf |publisher=Mastercard |date=December 2020 |access-date=2021-08-23 |archive-date=2021-08-23 |archive-url=https://web.archive.org/web/20210823112149/https://www.mastercard.us/content/dam/mccom/global/documents/mastercard-rules.pdf |url-status=dead }}</ref><ref name="Visa Rules">{{cite web |last1=Visa core rules 2021 |title=Visa card scheme - Product and service rules |url=https://sr.visa.com/content/dam/VCOM/download/about-visa/visa-rules-public.pdf |publisher=Visa |date=April 2021}}</ref> to process the card exchange data from the acquiring to the [[issuing bank]], and vice versa, until the [[payment]]<ref name="Payments industry ecosystem 2021">{{cite web |title=The payment industry's biggest trends in 2021 |url=https://www.insiderintelligence.com/insights/payments-ecosystem-report/ |publisher=Insider Intelligence |date=July 2021}}</ref> is fully completed (or denied). Credit and [[debit card]]s work with a four-party scheme, completing an open-circle framework that permits consistent flow of transactions; thus, allowing the banks to handle the whole process.

Card schemes aim to make the transaction convenient and automated for all parties involved in the loop, with the core belief that [[Customer|clients]] end up spending more than intended when the payment process is simple.

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===Merchant===

Any business, or individual, that receives payment based on the product or service, which they offer.

===Payment processor===

The [[Payment processor|payment processing company]] imparts and transfers data for a client's credit or debit card to both the issuing and acquiring bank. The processor likewise checks for security issues, ensuring that the client's card information is right, and all data is entered correctly. Also, the same party deals with incorrect or accidental charges.

===Payment gateway===

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===Interchange fees===

[[Interchange fee]]s<ref name="Interchange fees between the UK and EEA">{{cite web |title=Mastercard and Visa - revisions to interchange rates between the UK and the EEA |url=https://www.bambora.com/news/mastercard-and-visa-announce-changes-to-interchange-fees-between-the-uk-and-the-eea/ |publisher=Bambora |date=May 2021}}</ref> (or trade fees) are transaction charges that the acquiring bank pays when a payment is being processed via debit or credit card. The expenses are paid to the issuing bank and cover costs, such as processing fees, [[bad debt]], and charges due to risk and potential [[Fraud|fraudulent activities]].

== References ==

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{{DEFAULTSORT:Card Schemes}}

[[Category:Credit cards]]

{{econ-stub}}