Understanding Card Processing Networks for Beginners

When you use your credit or debit card it’s easy to overlook the complex system that makes that transaction seem so simple.  Behind the scenes, the card-networks are the central players in a vast system of providers. Understanding the networks and the role they play can be a huge undertaking, particularly for merchants who are just beginning to dive into payment systems and card processing.

Card processing networks (sometimes called “card brands”) like Visa and Mastercard are the backbone of payments processing, connecting the players so you can swipe without worry — allowing merchants to accept all types of card-payments from customers and other businesses. To accept these payments, merchants must have access to an acquiring bank and the proper tools for accepting and processing payments, such as a payment gateway for digital transactions. 

Capital One Shopping Research reveals a global total of 791 billion credit card transactions in 2024, averaging out to more than two billion per day. Such high numbers make it crucial for merchants to understand the complexities of card processing and the role it plays in their day-to-day operations.

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. Stay tuned to discover how major card processing networks like Visa and Mastercard work their magic.

What is a Card Processing Network?

A card processing network (also called a credit card processing network) is a financial organization that facilitates card-based payments. Some of the most common card processing networks are Mastercard, Visa, Discover, and American Express (AmEx), as well as UnionPay in China.

Visa remains one of the most popular card networks, processing 233.8 billion transactions in 2024, equivalent to more than $13 trillion in payments volume. Mastercard followed close behind at an estimated 197 billion transactions in 2024, while other card networks like Discover and American Express processed a combined total of roughly 23.6 billion transactions. 

What these card networks do is fairly straightforward: they offer infrastructure for digital payments. They create the rules and pathing that makes it possible to accept, authorize, verify, and ultimately approve card transactions. You may hear the term debit or credit card “rails” - which refers to the infrastructure that enables card-payments. It’s an apt metaphor - think of the card brands as the railway company that lays down the train tracks. They manage and standardize the construction of rail lines, set rules for the signals and practices locomotives must follow, and bring order and safety to the world of commerce.

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.

There are now thousands of debit card and credit card products in addition to card-products like gift cards. These are created by card issuers (often working with a partner, such as an airline or your favorite retailer) that work with the card networks. These issuing banks and financial firms offer cards in partnership with one of these payment networks.

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. 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. This includes both in-person payments and digital payments, though networks have placed an increasing amount of emphasis on optimizing digital payments over recent years with the surge in card-not-present volumes and activity.

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. Overall, card processing networks enable merchants to accept, authorize, and approve card payments.

How Card Processing Networks Work

Carrying out a transaction is a complex process — one that merchants and businesses would struggle to complete without the assistance of card processing networks and payment service providers. The requirements go beyond just executing the transaction too - they encapsulate settlement, reporting, monitoring, returns/refunds, and disputes or chargebacks. For now, let’s stick to the basic transaction.

In-person card payments (sometimes called “card-present”) involve a physical point-of-sale (POS) system, while digital card payments (ecommerce, which is also a type of “card-not-present” transaction) utilize digital tools, called payment gateways. Payment processors are the service providers that connect the merchant to the card processing network, while payment gateways communicate the transaction to the cardholder and the merchant (think of the approval or denial message) that comes back after a payment is submitted. In order for a transaction to be approved, each player in the system must approve it - if a single participant doubts the validity of the transaction, it will not go through (although Payments Orchestration does offer some workarounds).

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 transfer funds from the customer to the merchant:

Issuing Banks: Issuing banks are the institutions that provide the bank account (or credit account for credit cards) that are linked to the debit or credit cards of the cardholder. Issuing banks, in partnership with the issuer-processor) are responsible for authorizations and set the necessary security standards and verification measures required for cardholders to make a purchase.

Acquiring Banks: Acquiring banks are the institutions which receive money into a bank account they maintain 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.

In an open-network, banks and processors such as those working with Visa and Mastercard may come in all shapes and sizes. Closed-networks, such as American Express and Discover, actually have all these entities under a single brand in a closed-loop. While this can have its benefits, it generally means a less-inclusive operating model and subsequently less adoption for these networks. This is why it’s important for merchants to clearly identify which networks they will accept and participate in to optimize the customer experience. If you’re a luxury brand or a high-end travel experience merchant then not accepting American Express might mean turning off many of your key customers.

To illustrate where the card network sits in the transaction flow, let’s examine a transaction flow among parties in an open-loop system courtesy of Mastercard.

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Step 1: The customer pays with Mastercard
The customer purchases goods/services from a merchant.

Step 2: The payment is authenticated
The merchant point-of-sale system captures the customer’s account information and securely sends it to the acquirer.

Step 3: The transaction is submitted
The merchant acquirer asks Mastercard to get authorization from the customer’s issuing bank.

Step 4: Authorization is requested
Mastercard submits the transaction to the issuer for authorization.

Step 5: Authorization response
The issuing bank authorizes the transaction and routes the response back to the merchant.

Step 6: Merchant payment
The issuing bank routes the payment to the merchant’s acquirer who deposits the payment into the merchant’s account

How Payment Processing and Card Networks Work Together

The relationship between payment processing and card networks forms a necessary foundation for online transactions. Card networks work with payment processing providers to move money securely and efficiently between customers, merchants, and financial institutions. 

We discussed the roles of key players in payment processing, such as issuing and acquiring banks. For those banks to receive the information they need to validate a transaction, however, the payment information must first pass through the payment processing network to the appropriate card network. When a customer checks out, the quality of this relationship can have a major impact on card processing.

The card networks act as a main pathway for connecting to banks. In some cases, the card network itself may also be a customer’s banking provider, such as with Discover. A distinguishing factor of card networks is that they don’t typically process payments themselves but instead follow set rules for authorizing and settling transactions. Card networks are often responsible for charging interchange fees and maintaining effective lines of communication for merchants to connect with banks, and vice versa. 

Meanwhile, payment processors handle the more technical aspect of card processing. They are responsible for routing a customer’s card information from the digital checkout interface to the appropriate payment processing network. Without payment processors to monitor transactions, merchants could not reliably count on receiving funds in a timely fashion. 

If we think of card networks as pathways, then payment processors can be thought of as the transportation vehicles traveling along these pathways to deliver sensitive payment data. 

While payment processors and card networks perform different roles, they are both crucial for enabling card payment processing. Both prioritize speed and security and without one, the other cannot fully function. Processors rely on card networks to connect to banks, and card networks need processors to more easily communicate with and provide services to merchants. 

Payment processors deal directly with merchants so that card networks can focus on broader issues, like compliance and governance. Merchants often also depend on payment processors to provide tools for fraud prevention and detection, making processors a key player in payment security as well. Card networks, on the other hand, work primarily to authorize and settle payments on behalf of merchants, along with assisting with risk and dispute management. 

Another difference is that payment processing networks may include both traditional payment processors and newer technologies, such as gateways or acquirers that manage different parts of the transaction chain. A card network is specific to one brand and is used to transmit data and funds in real-time. 

Card Processing Network vs. Payment Processor

While both card processing networks and payment processors are vital in the facilitation of card payments, the roles played by each differ broadly. Card processing networks—Visa, Mastercard, Discover, and American Express—provide the infrastructure and rules to allow transactions to take place. They connect issuing banks, acquiring banks, and merchants in a way that enables the authorization, verification, and settlement of payments with security.

What Is a Payment Processor?

A payment processor is a service provider responsible for executing the technical aspects of a transaction. The payment processor sits between the merchant, the card processing networks, and the bank to ensure that the data captured at the point of sale is safely transmitted for authorization and subsequent settlement. In addition to processing, they often provide tools related to reporting, fraud prevention, and other operational tasks.

Key Differences:

• Role: Card processing networks are responsible for developing and maintaining the payment infrastructure, while payment processors manage the technical processing of transactions.
• Merchant Interaction: Merchants interact directly with payment processors to link their systems to card processing networks and banks.
• Responsibilities: Card networks ensure compliance, rules, and connectivity among participants, while processors handle real-time tasks like routing, capturing, and settling payments.

Examples of Payment Processors:

• Stripe: Developer-friendly APIs for e-commerce and subscription businesses.
• Adyen: All-in-one commerce platform powering frictionless global payment interactions.
• Square: Simplifies payments for small businesses, enabling processing in person or online.
• PayPal: Combines processing capabilities with wallet services for merchants.

Understanding these differences allows merchants to build a payment infrastructure that balances efficiency and compliance while offering a superior customer experience.

‍Are Card Processing Networks Different from Card Issuers?

A common misconception when it comes to card-based transactions is that your card issuer is your card processing network (it’s confusing, we get it). While this may be true in cases of closed-networks (American Express), in the majority of cases, your card issuer is not the same as your card processing network at all.

Card issuers refer to the financial institutions that provide a customer with any type of card-payment method. The card issuer determines whether or not a transaction is approved. In the same way “card processor” is often used to describe both a processor and a merchant bank, “card issuer” can be used to describe both an issuer-processor (like Marqeta) and an issuing bank (like Wells Fargo). These parties work closely with a chosen card-network and, sometimes, a merchant in issuing a card-product (when a merchant works directly with these parties to get its logo on the card and tie-in a rewards program it is called a “co-branded” card).

Meanwhile, the card processing network is responsible for connecting the customer’s request to the relevant card issuer. Additionally, the card processing network is also responsible for passing transactional information to the merchant’s acquiring bank.

Are Debit Card Networks Different?

While debit and credit cards may look nearly identical, the networks they run on can differ significantly. The distinction between debit card networks and credit card networks affects how transactions are authorized, processed, and settled. Understanding how they differ can be crucial to both merchants and customers when working to lower transaction costs and processing times. 

A debit card network handles transactions where funds are withdrawn directly from a cardholder’s checking or savings account. Debit networks can authorize transactions in real-time and immediately move the money from one bank account to another. 

Credit card networks operate differently. Rather than drawing from a checking account, credit card purchases are financed through a line of credit issued by the cardholder’s bank. These networks facilitate authorization and settlement of credit-based purchases and provide features like fraud protection, chargeback support, and rewards programs.

One of the main differences between debit card networks and credit card networks is how they authorize payments. Debit card networks require the entry of a PIN to verify the cardholder’s identity, offering an extra layer of security. Credit card transactions are typically verified via signature or digital authorization, making them sometimes more susceptible to fraud and therefore in need of more proactive fraud prevention and identity verification.  

Cost is another area of distinction between credit card and debit networks. Debit networks generally charge lower interchange fees than credit card networks. For merchants, this can mean lower processing costs when customers use debit cards. However, the benefits of credit cards to consumers, such as rewards points or the ability to finance purchases, often lead to higher usage despite increased costs.

Like credit card networks, debit networks often also fall under the rule of the major card companies like Visa and Mastercard. This overlap of infrastructure can sometimes blur the lines between credit and debit networks, but the underlying logic remains the same. There are alternatives as well, such as the debit payments network STAR, that also offer debit card network services.  

Additionally, debit networks may support both online (PIN) and offline (signature-based) transactions. In the case of offline debit, the transaction may be routed through a credit card network, but the funds still come directly from a checking account. This hybrid processing is another area where confusion can arise.

What are Open vs. Closed Networks?

To understand how card processing networks work behind the scenes, we must first examine the two different types of card processing networks:

• Open Networks: Open networks (such as Visa and Mastercard) are card processing networks that allow other financial institutions to issue credit cards within their networks to customers. Remember, in an open network, the card processing network generally does not act as a card issuer, relying instead on third-party institutions like banks to issue and distribute cards.
• Closed Networks: Closed networks (such as Discover and AmEx) act as both the card processing network and the card issuer. These types of networks typically offer banking services and do not allow third-party institutions to issue their credit cards. Closed networks can offer co-branded cards as well, think of the Delta card from American Express where Delta has partnered with the actual card-network.

Knowing whether a card belongs to an open or closed network is important for understanding the nuances of the card payment process.

How Do Merchants Connect to a Card Processing Network?

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.

This requires a variety of different integrations within the merchant’s payment infrastructure. Depending on how a merchant manages their payment system, this infrastructure can be built through direct integration to one or more payment service providers (PSPs) or streamlined through an orchestration platform like Spreedly.

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. The card-networks facilitate the flow of information between these two parties at time of transaction. The actual transfer of funds happens later, but the networks provide the data-transfer so that funds can be settled in a timely manner.

Payment orchestration platforms are ideal for any merchant dealing with digital payments, as they not only simplify the necessary card processing integrations but also have the integrations needed for both card- and non-card payment methods.

Additionally, payment orchestration platforms often provide more comprehensive support and security to keep a merchant’s payment system safe and up to the latest compliance standards.

Important Cost Considerations for Card Processing Networks

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. Motley Fool Money reports that credit card processing fees ranged from 1.10% to 3.15% in 2024, and that credit card companies earned a record 148.5 billion in processing fees in 2024 as well.  

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

• Interchange Fees: Every transaction comes with an interchange fee, calculated using a flat rate plus a small percentage of the sale. These fees often make up the biggest chunk of processing costs. A 2024 Forbes article reports the following average interchange fees for the four major card processing networks:  
  
  • Visa: 1.15% + $0.05 to 2.40% + $0.10
  • Mastercard: 1.15% + $0.05 to 2.50% + $0.10 
  • American Express: 1.43% + $0.10 to 3.30% + $0.10
  • Discover: 1.35% + $0.05 to 2.40% + $0.10 
• Payment Processor Fees: Payment processor fees are charged to merchants for the use of various payment processors and other payment tools. These fees are sometimes referred to as merchant service fees and can include both per-transaction and monthly fees. The cost of these fees varies widely depending on the payment service providers a merchant works with.
• Assessment Fees: Assessment fees are charged monthly to the merchant by the card processing networks. These fees are calculated based on a percentage of the merchant’s monthly sales. Per Forbes, the average cost of assessment fees in 2024 was as follows:
  
  • Visa: 0.14%
  • Mastercard: 0.1375% for transactions under $1,000 or 0.01% for transactions over $1,000
  • American Express: 0.15%
  • Discover: 0.13%

Connect to a Global Payments Ecosystem with Spreedly

At Spreedly, our payment orchestration platform optimizes payment infrastructures for merchants, merchant aggregators, and fintechs.

Through the Spreedly API, you can easily connect to a global payments ecosystem, including connections to all the major card processing networks. Our team works to ensure each of your transactions is fully optimized, secured, and cost-effective. Plus, we help you achieve higher authorization rates and lower card-processing fees by reducing payment friction across the entire payment process.

Spreedly’s Connect solution gives you a central hub for viewing and managing your payment stack. You can integrate multiple payment processors according to your needs, all while maintaining access to and good communication with card and debit networks. Adding Connect to your payment flow gives you the freedom to reduce your operational complexity and simplify payment tool configurations. 

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 in touch with Spreedly today to begin lowering the costs of card processing.

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