What Visa and Mastercard actually do: an intro to card networks

Visa and Mastercard logos appear on hundreds of millions of payment cards, and most people assume the companies behind them issue those cards. They do not. A detailed explainer published at tautology.town sets out what the two firms actually do, and what they leave to banks, processors and merchants.

What a card network does not do

Visa and Mastercard are not card issuers: the bank named on your card is. They are not banks. They do not build point-of-sale terminals or online checkouts — that is the work of payment processors — and they do not underwrite merchants or open merchant accounts, a job done by acquiring banks and increasingly by firms such as Stripe, Square and Adyen. Nor do they print cards.

Instead they operate card networks: the rails connecting cardholders and their issuers to merchants and their acquirers. The article groups the work into four duties — running the telecommunications network, coordinating the banking network, setting incentives, and making and enforcing the rules, disputes included.

Routing messages, moving money

Visa forwards transaction messages between issuers and acquirers; Mastercard calls this "switching". Its flagship Operations Center East is a 140,000-square-foot facility built to withstand earthquakes and winds of up to 170 miles per hour, with hydraulic bollards able to stop a vehicle travelling at 50 miles per hour.

A purchase starts with an authorization routed from merchant to issuer; the first six to eight digits of a card number, the Bank Identification Number, identify the issuer much as an IP address identifies a network. The amount is held, the merchant later submits the final total in clearing, and money moves in settlement. Visa nets participants' debits and credits and moves the balance once a day, and can settle across currencies. Its 2024 annual report says most dollar settlements complete the same day while other currencies take one to two business days, and that it held $11.2 billion of liquidity for daily settlement against a maximum daily exposure of $137.4 billion in fiscal 2024.

Who gets paid

On a $100 card payment in the United States the merchant pays about 2.5 per cent: the processor keeps roughly 0.35 per cent, the cardholder's bank takes an interchange fee of about 2 per cent and the network about 0.15 per cent as an assessment fee. Interchange is set by the networks and varies by card type and spend category; in the European Union it is capped at 0.3 per cent, which the article links to the scarcity of rewards cards there.

Rules and disputes

Network rules fill a 923-page public volume, and breaking them can cost issuers and acquirers $25,000 to $1 million a month in fines or put their membership at risk. Disputes run through a private process: the two sides exchange evidence and, if neither accepts liability, the network reviews the case for $600, or $1,000 on appeal, with the loser paying the transaction amount plus the fee. Acquirers also charge merchants $15 to $30 when a dispute is filed, even if the merchant wins.