Payments Orchestration

Understanding Card Processing Networks for Beginners

An explainer covering the ins and outs of card processing networks in simple terms

Written by
Jordan Chavis
Publication Date
November 22, 2022
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When you swipe your credit or debit card, you might think nothing of the inner workings behind payment processing. But behind the scenes, these networks can be a huge undertaking, particularly for merchants who may be unfamiliar with payment systems and card processing.

Card processing networks like Visa and Mastercard offer the backbone of payments facilitation so you can swipe without worry — allowing merchants to accept debit and credit card payments from customers and other businesses. To accept these payments, merchants must have access to an acquiring bank and the proper digital tools for accepting and processing payments, such as a payment gateway, or a payments orchestration platform.

In this article, we cover what you need to know about card processing networks, including what they are, how they work, and any fees you need to be aware of.

Keep reading to learn how you can connect to a global payment ecosystem through Spreedly!

What is a Card Processing Network? 

A card processing network is an organization that facilitates credit or debit card payments. 

Most people are familiar with the four major card networks  — Mastercard, Visa, Discover, and American Express. The first two, Mastercard and Visa, account for more than 80% of transaction volume in the United States. 

What these card networks do is fairly straightforward: they offer infrastructure for digital payments. They offer the tech that makes it possible to accept, authorize, verify, and ultimately approve digital transactions.

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. In retrospect, we now live in a world which spends on plastic — and so many merchants now support all four major payment networks. 

That’s because there are now thousands of debit card and credit card products issued by card issuers, which are often the banks and financial firms offering cards on the payment networks. Not supporting the thousands of credit and debit card products now on the market means lost sales for merchants.

The major card networks, along with a Japanese payment network called JCB International, form the PCI Security Standards Council — an organization and authority in the payments industry that regulates payment processing to protect cardholder information.  

As such, card processing networks not only facilitate card payments but also outline the rules and requirements for merchants to follow when accepting card payments.

How Card Processing Networks Work

Carrying out a transaction is a fairly complex process — one that merchants and businesses would struggle to complete without the assistance of card processing networks and payment service providers.

When a customer makes a purchase, the customer sets in motion a request to their card issuer to provide the payment to a merchant. The processing network for the customer’s card receives the initial request, passing this information on to both the merchant’s acquiring bank and the customer’s card issuer. 

These two banks are the intermediaries which get money from the customer to the merchant:

  • Issuing Banks: Issuing banks are the institutions that provide debit or credit cards to the customer. Issuing banks are responsible for authorizations and set the necessary security standards and verification measures required for cardholders to make a purchase. This will often be a bank like Chase, American Express, or Citi.
  • Acquiring Banks: Acquiring banks are the institutions which receive money on behalf of merchants. After a customer has made a purchase which has been authorized by the issuing bank, the acquiring bank collects the payment from the issuing bank and transfers it into the merchant’s account.

As you might have derived by now, issuing banks and, card issuers are the same organization as the payment network. Discover and American Express are two examples of a closed network, which is when the same organization both processes card transactions and issues the physical card to customers. 

While Discover and American Express are fairly widely accepted, not all closed networks are. 

Comparatively, an open network is a card processing network that does not directly issue cards to cardholders. Instead, these networks partner with other businesses to facilitate payments. Open networks often work with card issuers — a bank or other financial institution capable of issuing cards to customers. Visa and Mastercard are examples of open networks.

How Do Merchants Connect to a Card Processing Network? 

In simple terms, the way a merchant connects to a card processing network is through an acquiring bank. An acquiring bank accepts money on behalf of the merchant from the issuing bank, but in order to accept that money, there must be a connection between the two.

This connection is called a payment gateway, a solution used by merchants to accept and transfer payments from various card networks. Payment gateways are used to both simplify the transaction process and to better protect cardholder data.

For merchants who plan on enabling both card payments and alternative payment methods (PayPal, Apple Pay, bank transfers, etc), specific payment system integrations are required.

Important Cost Considerations for Card Processing Networks 

The privilege for merchants to accept plastic instead of cold hard cash comes with some costs —  fees are tacked on to every transaction made on a payment network, which are levied by payment networks, processors, and issuers. 

Card processing fees cover the cost of running large payment networks and credit card businesses, as well as supporting payment processors. In general, there are three main types of card processing fees merchants encounter:

  • Interchange Fees: Interchange fees are paid to the card issuer for every transaction. These fees are calculated using a flat rate plus a small percentage of the total sale. The average interchange rate for credit cards is 1.81%. Debit card transactions are cheaper when it comes to interchange fees, costing around 0.3%.
  • Payment Processor Fees: Payment processor fees are charged to merchants based on what payment processing services, tools, and equipment is used. These fees are sometimes called merchant service fees. This might include fees per transaction, as well as monthly fees, statement fees, and equipment fees (if a payment services provider is providing the equipment to the merchant).
  • Assessment Fees: Assessment fees are paid to the card processing network monthly based on a merchant’s monthly sales. This is distinct from interchange in that merchants usually will only pay networks after receiving their money. These fees are paid to the card processing network to allow the merchant to accept payments from cards that belong to that specific network.

Final Thoughts: Connect to a Global Payments Ecosystem with Spreedly

For merchants, merchant aggregators, and fintechs looking to optimize their payment system, Spreedly has the tools and resources you need. 

Spreedly’s payments API allows companies to connect to the  global payments ecosystem. Companies like Seatgeek, Docusign, Volusion, and Chargebee already use Spreedly to accelerate their growth and gain access to a wide range of payment services, fraud tools, and other products. 

Plus, Spreedly’s payment orchestration platform covers all your bases with card processing networks to ensure your transactions are optimized, secure, and cost-effective. You’ll enjoy higher authorization rates and lower interchange fees, all while working to secure transactions and reduce fraud.

Whether you are carrying out traditional credit and debit card transactions or you are utilizing alternative payment methods, Spreedly has the payment method connection capabilities necessary to keep your payment system localized and frictionless. 

Get started with Spreedly today to learn the true power of payment orchestration.

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