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Credit Card Networks: How Do They Work In Businesses

19 Jul 2024

Credit cards are the most popular payment methods in the US with the total transaction value predicted to $3.843 trillion in 2025. As a small business owner, you are always going to have to deal with credit cards and the major credit card networks that power them. This is despite the fact that  a lot of small business owners may not know what credit card networks are and how they work.

Accepting lots of payment methods is just good business and understanding how credit card networks work can give you the best insight into maximizing their potential and minimizing risks.

but knowing how credit card networks work can give business owners insight into how to maximize their usage and minimize risks. Here's what businesses should know. In this article, we're giving you the lowdown on all things credit card networks, including:

  • What credit card networks are
  • The difference between credit card issuers and credit card networks
  • Types of credit card networks out there
  • How do credit card networks work?
  • Processing fees for major credit card networks

Let's get started!

What are credit card networks?

Credit card networks help banks and businesses communicate with each other to process credit card transactions. These networks and the banks approve and handle the transactions. On top of this, they decide the terms for each transaction and move money between customers, businesses, and banks. Major credit card networks are Visa, Mastercard, American Express, and Discover, but there are others too.

What is the difference between credit card issuers and networks?

Now onto our next section, the difference between credit card issuers and credit card networks. A credit card issuer (also known as an issuing bank) is a financial institution that provides people with credit cards. For instance, if you've got a credit card with your main banking institution with the bank logo and the Amex logo on it, the bank is the credit card issuer and Amex is the credit card network.

Now, when you use a credit card to purchase something, the transaction request then goes on to the credit card issuer, who then decides whether they're going to authorise it or not. The issuer is the bank that gives the cardholder credit. The cardholder then pays the bank back for any purchases made with the credit card.

Credit card networks can also act as issuers, giving credit directly to cardholders without needing a bank or another financial institution to do it.

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Types of credit card networks

Now that you know what a credit card network is, and how it's different to a credit card issuer, let's get onto the different types of credit card networks out there. These include:

Open card network

Open credit card networks let other financial institutions issue their credit cards to customers. The two most popular open credit card networks are Mastercard and Visa.

Closed card network

On the other hand, a closed credit card network is a credit card company that exclusively issues credit cards. The credit card network also acts as the acquirer and disburses your customer's funds directly to your company's banks, excluding the transaction fees. Some popular closed networks are American Express and Discover.

How do credit card networks work?

Credit card networks connect the card issuer and the business for credit card purchases. Here's how they work:

The customer’s transaction starts at the payment terminal

The customer uses their credit card at your business's payment terminal by swiping, inserting, tapping, or entering the card number into your card machine.

The payment processor connects with the credit card network

Once your customer's used their credit card, your credit card machine or terminal sends the card info to the payment processor, which then contacts the credit card network for approval.

  • If the network is the card issuer: The network decides if the transaction is approved or not.
  • If there's a separate card issuer: The network checks with the issuing bank for approval.

The credit card network contacts the credit card issuer for transaction approval

The credit card network quickly tells the business if the transaction is approved or denied, usually this decision is made within seconds.

Processing fees of major credit card companies

Credit card networks charge different fees for each transaction, which is a major factor for businesses when choosing which networks to accept.

Types of credit card fees - opportunity to link back to how to accept credit card payments piece

When a business accepts credit card payments, they'll have to pay two main types of fees for every credit card transaction: interchange fees and assessment fees.

  • Interchange fee: The acquiring bank charges interchange fees. For example, if Wells Fargo issued a customer's Mastercard, the business pays an interchange fee to Wells Fargo whenever that card is used.
  • Assessment fee: The credit card network charges the assessment fee. So, for the same Wells Fargo-issued Mastercard, the assessment fee goes to Mastercard on every purchase.

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How Epos Now payment services can help with credit card networks in your business

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Most common questions about payment networks

Which network is bigger: Visa or Mastercard?

According to Investopedia, While Visa is bigger in terms of its transactions, cards in circulation, and purchase volume. Visa and Mastercard have pretty much identical merchant acceptance footprints globally.

Why do credit card networks matter for businesses?

A credit card network makes accepting payments easy and secure. They connect businesses with banks to quickly approve transactions and transfer funds, ensuring customers can pay with their credit cards smoothly. These credit card networks also offer fraud protection, adding a layer of security to every transaction. 

By supporting different payment methods, credit card networks and major credit card issuers help businesses cater to what their customers prefer, making shopping more convenient. Plus, major credit card networks like Visa, Mastercard, and American Express are used worldwide, allowing businesses to reach more customers and increase sales.

Why do American Express and Discover charge higher fees for businesses? 

American Express and Discover have higher fees because they act as both the network and the issuer for their cards, handling more of the transaction process. This allows them to keep both the interchange and assessment fees, but it also means higher costs for businesses, causing some retailers to not accept their cards.


What is a chargeback in banking?

A chargeback is when a customer tells their bank to reverse a charge from your business because they’re not happy with it or didn’t authorize it. Chargebacks protect people from sketchy transactions (like those unauthorized or fraudulent transactions you hear about), but they can be a real hassle for businesses.