Payments Academy
Card network PAYMENT OPERATIONS STARTED LIVE 01 Card network - rails that connect the issuing bank ACTIVE 02 Card four-party model - has four main participants plus the network QUEUED 03 Network rules - cover almost every part of a card transaction QUEUED 04 Brand fees - also called scheme fees QUEUED 05 How money and fees flow - simple example shows how the money QUEUED 06 Network never - keeps the transaction amount QUEUED A card network is the rails that connect the issuing bank, which gives the card to the customer, with the acquiring bank, which serves the merchant. Step 1 of 6 Card network STARTED Card network rails that connect the issuing bank ACTIVE Card four-party model has four main participants plus the network QUEUED Network rules cover almost every part of a card transaction QUEUED Brand fees also called scheme fees QUEUED How money and fees flow simple example shows how the money QUEUED Network never keeps the transaction amount QUEUED A card network is the rails that connect the issuing bank, which gives the card to the customer, with the acquiring bank, which serves the merchant.
Card four-party model PAYMENT OPERATIONS IN PROGRESS LIVE 01 Card network - rails that connect the issuing bank DONE 02 Card four-party model - has four main participants plus the network ACTIVE 03 Network rules - cover almost every part of a card transaction QUEUED 04 Brand fees - also called scheme fees QUEUED 05 How money and fees flow - simple example shows how the money QUEUED 06 Network never - keeps the transaction amount QUEUED The four party model has four main participants plus the network itself. Step 2 of 6 Card four-party model IN PROGRESS Card network rails that connect the issuing bank DONE Card four-party model has four main participants plus the network ACTIVE Network rules cover almost every part of a card transaction QUEUED Brand fees also called scheme fees QUEUED How money and fees flow simple example shows how the money QUEUED Network never keeps the transaction amount QUEUED The four party model has four main participants plus the network itself.
Network rules PAYMENT OPERATIONS IN PROGRESS LIVE 01 Card network - rails that connect the issuing bank DONE 02 Card four-party model - has four main participants plus the network DONE 03 Network rules - cover almost every part of a card transaction ACTIVE 04 Brand fees - also called scheme fees QUEUED 05 How money and fees flow - simple example shows how the money QUEUED 06 Network never - keeps the transaction amount QUEUED Network rules cover almost every part of a card transaction, from the format of the message to the time allowed for a refund. Step 3 of 6 Network rules IN PROGRESS Card network rails that connect the issuing bank DONE Card four-party model has four main participants plus the network DONE Network rules cover almost every part of a card transaction ACTIVE Brand fees also called scheme fees QUEUED How money and fees flow simple example shows how the money QUEUED Network never keeps the transaction amount QUEUED Network rules cover almost every part of a card transaction, from the format of the message to the time allowed for a refund.
Brand fees PAYMENT OPERATIONS IN PROGRESS LIVE 01 Card network - rails that connect the issuing bank DONE 02 Card four-party model - has four main participants plus the network DONE 03 Network rules - cover almost every part of a card transaction DONE 04 Brand fees - also called scheme fees ACTIVE 05 How money and fees flow - simple example shows how the money QUEUED 06 Network never - keeps the transaction amount QUEUED Brand fees, also called scheme fees, are what the network charges for its service, and they are separate from interchange. Step 4 of 6 Brand fees IN PROGRESS Card network rails that connect the issuing bank DONE Card four-party model has four main participants plus the network DONE Network rules cover almost every part of a card transaction DONE Brand fees also called scheme fees ACTIVE How money and fees flow simple example shows how the money QUEUED Network never keeps the transaction amount QUEUED Brand fees, also called scheme fees, are what the network charges for its service, and they are separate from interchange.
How money and fees flow PAYMENT OPERATIONS IN PROGRESS LIVE 01 Card network - rails that connect the issuing bank DONE 02 Card four-party model - has four main participants plus the network DONE 03 Network rules - cover almost every part of a card transaction DONE 04 Brand fees - also called scheme fees DONE 05 How money and fees flow - simple example shows how the money ACTIVE 06 Network never - keeps the transaction amount QUEUED A simple example shows how the money and the fees flow. Step 5 of 6 How money and fees flow IN PROGRESS Card network rails that connect the issuing bank DONE Card four-party model has four main participants plus the network DONE Network rules cover almost every part of a card transaction DONE Brand fees also called scheme fees DONE How money and fees flow simple example shows how the money ACTIVE Network never keeps the transaction amount QUEUED A simple example shows how the money and the fees flow.
Network never PAYMENT OPERATIONS COMPLETE LIVE 01 Card network - rails that connect the issuing bank DONE 02 Card four-party model - has four main participants plus the network DONE 03 Network rules - cover almost every part of a card transaction DONE 04 Brand fees - also called scheme fees DONE 05 How money and fees flow - simple example shows how the money DONE 06 Network never - keeps the transaction amount ACTIVE The network never keeps the transaction amount, it only moves it and takes its small fee for the service. Step 6 of 6 Network never COMPLETE Card network rails that connect the issuing bank DONE Card four-party model has four main participants plus the network DONE Network rules cover almost every part of a card transaction DONE Brand fees also called scheme fees DONE How money and fees flow simple example shows how the money DONE Network never keeps the transaction amount ACTIVE The network never keeps the transaction amount, it only moves it and takes its small fee for the service.

Key points of this lesson, in order.

0:00 / 3:38 Step 1 of 6

Card Network Roles

Card Networks: Visa and Mastercard, Lesson 1 of 8, Narration 3:38, D08 Cards and alternative payments

InterchangeSettlementChargeback

What you will learn

Your objective. By the end of this lesson, you will be able to explain card network roles. A card network is the rails that connect the issuing bank, which gives the card to the customer, with the acquiring bank, which serves the merchant.

Why it matters. The cardholder is the customer who holds the card and makes the purchase.

Chapter objective: Learner explains how Visa and Mastercard networks operate, including authorization, clearing, interchange, scheme fees, and settlement, and compares the two networks for a merchant. Learner applies this skill in realistic banking scenarios, with clear examples and correct terminology throughout.

Key learning points

  • Card network
  • Card four-party model
  • Network rules
  • Brand fees
  • How money and fees flow
  • Network never

Key terms

Interchange: A fee paid by the acquirer to the issuer for each card transaction, set by the card scheme. It compensates the issuer for handling the transaction, funding the interest free period and managing fraud...

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

Chargeback: A dispute raised by a cardholder through the issuer to reverse a card payment, for example for fraud, non delivery or a duplicate charge.

Payment flow diagram showing Card Network Roles.

Practise this lesson

Exercise

Trace the card payment in this lesson through authorisation, clearing and settlement.

Use the four-party model and the stage timings in this lesson.

  1. What to do. State what happens at each stage, who pays whom, and when the merchant is actually credited.

Correct result. Authorisation holds the funds and returns a response code. Clearing sends the transaction in a batch file. Settlement moves the net amount between banks, and the acquirer credits the merchant after deducting interchange, scheme fees and its margin.

Why. A card payment is not one event. The customer sees it on Monday, the merchant gets it on Wednesday, and the difference is the clearing and settlement cycle.

Check your understanding

Practice question

How do Visa and Mastercard mainly earn revenue in a card transaction?

Takeaway and next step

What to remember

The network never keeps the transaction amount, it only moves it and takes its small fee for the service.

Follow 4 rupees through every stage, from instruction to beneficiary credit, and note where it can stop.

Open the Payment Lifecycle Simulator →

Builds on "Gateway Fees and Commercial Models".

Transcript and full text

Show transcript

A card network is the rails that connect the issuing bank, which gives the card to the customer, with the acquiring bank, which serves the merchant. When a customer pays with a Visa card, the merchant terminal or gateway sends the transaction to the acquirer, the acquirer sends it to Visa, Visa routes it to the issuer, and the issuer approves or declines it. The network does not hold the customer money and does not decide the credit limit, but it provides the messaging standards, the routing, the clearing and settlement service, and the rules that all participants must follow. Without the network, each issuer would need a direct connection to each acquirer, which would be impossible at global scale. The four party model has four main participants plus the network itself. The cardholder is the customer who holds the card and makes the purchase. The merchant is the business that accepts the card and receives the payment. The issuer is the bank that issued the card, for example HDFC Bank or State Bank of India, and it bears the credit risk and pays the merchant through the network. The acquirer is the bank that processes payments for the merchant, for example ICICI Bank or Axis Bank, and it bears the merchant risk. Visa or Mastercard sits in the middle, routing messages, calculating settlement, and enforcing brand rules, but it does not appear on the customer bank statement as the payee. Network rules cover almost every part of a card transaction, from the format of the message to the time allowed for a refund. The network defines the message standard, usually ISO 8583 for authorization and clearing, the maximum time an issuer has to respond, the data that must be present in a clearing file, and the reason codes that can be used for a chargeback. It also sets rules for card acceptance, for example a merchant that displays the Visa logo must accept all Visa cards, and for minimum transaction amounts, surcharging and refunds. A bank that breaks the rules can face fines, which are called compliance assessments, and in serious cases it can lose its network license. Brand fees, also called scheme fees, are what the network charges for its service, and they are separate from interchange. Interchange is paid by the acquirer to the issuer, and it is the largest part of the merchant discount rate. Scheme fees are paid by both the issuer and the acquirer to the network, and they cover authorization, clearing, settlement, fraud monitoring and brand use. A typical scheme fee might be 0.08 percent of the transaction value plus a fixed fee of 10 paise per transaction, although the exact rate depends on the card type, the region and the transaction channel. On a 5,000 rupee transaction, the scheme fee is only about 4 rupees, but across billions of transactions it funds the network operation. A simple example shows how the money and the fees flow. A customer buys a television for 40,000 rupees with a Mastercard credit card issued by Kotak Mahindra Bank, at a merchant whose acquirer is HDFC Bank. The merchant discount rate is 2 percent, so the merchant receives 39,200 rupees and 800 rupees is deducted. Of that 800 rupees, about 620 rupees goes to the issuer as interchange, about 40 rupees goes to Mastercard as scheme fees, and the remaining 140 rupees is shared by the acquirer and the gateway. The customer pays 40,000 rupees to the issuer on the card statement, the issuer pays the acquirer through the network settlement, and the acquirer pays the merchant. The network never keeps the transaction amount, it only moves it and takes its small fee for the service.

A card network is the rails that connect the issuing bank, which gives the card to the customer, with the acquiring bank, which serves the merchant. When a customer pays with a Visa card, the merchant terminal or gateway sends the transaction to the acquirer, the acquirer sends it to Visa, Visa routes it to the issuer, and the issuer approves or declines it. The network does not hold the customer money and does not decide the credit limit, but it provides the messaging standards, the routing, the clearing and settlement service, and the rules that all participants must follow. Without the network, each issuer would need a direct connection to each acquirer, which would be impossible at global scale.

The four party model has four main participants plus the network itself. The cardholder is the customer who holds the card and makes the purchase. The merchant is the business that accepts the card and receives the payment. The issuer is the bank that issued the card, for example HDFC Bank or State Bank of India, and it bears the credit risk and pays the merchant through the network. The acquirer is the bank that processes payments for the merchant, for example ICICI Bank or Axis Bank, and it bears the merchant risk. Visa or Mastercard sits in the middle, routing messages, calculating settlement, and enforcing brand rules, but it does not appear on the customer bank statement as the payee.

Network rules cover almost every part of a card transaction, from the format of the message to the time allowed for a refund. The network defines the message standard, usually ISO 8583 for authorization and clearing, the maximum time an issuer has to respond, the data that must be present in a clearing file, and the reason codes that can be used for a chargeback. It also sets rules for card acceptance, for example a merchant that displays the Visa logo must accept all Visa cards, and for minimum transaction amounts, surcharging and refunds. A bank that breaks the rules can face fines, which are called compliance assessments, and in serious cases it can lose its network license.

Brand fees, also called scheme fees, are what the network charges for its service, and they are separate from interchange. Interchange is paid by the acquirer to the issuer, and it is the largest part of the merchant discount rate. Scheme fees are paid by both the issuer and the acquirer to the network, and they cover authorization, clearing, settlement, fraud monitoring and brand use. A typical scheme fee might be 0.08 percent of the transaction value plus a fixed fee of 10 paise per transaction, although the exact rate depends on the card type, the region and the transaction channel. On a 5,000 rupee transaction, the scheme fee is only about 4 rupees, but across billions of transactions it funds the network operation.

A simple example shows how the money and the fees flow. A customer buys a television for 40,000 rupees with a Mastercard credit card issued by Kotak Mahindra Bank, at a merchant whose acquirer is HDFC Bank. The merchant discount rate is 2 percent, so the merchant receives 39,200 rupees and 800 rupees is deducted. Of that 800 rupees, about 620 rupees goes to the issuer as interchange, about 40 rupees goes to Mastercard as scheme fees, and the remaining 140 rupees is shared by the acquirer and the gateway. The customer pays 40,000 rupees to the issuer on the card statement, the issuer pays the acquirer through the network settlement, and the acquirer pays the merchant. The network never keeps the transaction amount, it only moves it and takes its small fee for the service.

Full lesson text (all scenes)

Completing a lesson updates your progress dashboard on the homepage.

Scene timestamps are estimated by allocating the narration text proportionally across the real audio length. The audio playback position is the source of truth: pause freezes the visual, seeking restores the correct scene, replay restarts the scene animation.