What Is a Credit Card Network?

Key Takeaways

A credit card network handles the authorization and processing of credit card transactions.
These networks transfer information between acquiring and issuing banks to facilitate transactions.
There are four major credit card networks, and the one your card operates in dictates where you can make transactions with a credit card.

Definition and Example of a Credit Card Network

When you dip, tap, or swipe your credit card to make a store purchase, or when you enter your card number online, you’re requesting that your card issuer pay a merchant, but that payment first has to go through a credit card network.

Credit card networks pass information between the merchant’s acquiring bank and an issuing bank or card issuer (the financial institution that issued you a card on behalf of a network like Mastercard or Visa) to decide whether you can make a purchase and to facilitate the purchase.

Note

The Visa and Mastercard networks cover credit cards, debit cards, prepaid debit cards, and gift cards. The American Express network includes credit cards, gift cards, and prepaid debit cards only, while Discover’s network includes credit cards as well as debit cards via its cash-back checking account.

How Credit Card Networks Work

While these payment networks operate behind the scenes, the process is fairly straightforward. Below is a step-by-step example of a credit card network’s function when you use your card to make a purchase.

To pay for a $50 haircut, you swipe or dip your card at Lola’s Hair Salon’s point-of-sale system (POS) using an ABCD Bank Visa.
Lola’s POS transmits your card information and the dollar amount to Lola’s bank (the acquiring bank).
That bank then sends the request to Visa, your card’s network.
The Visa network then electronically “talks” to your card issuer, ABCD Bank, to determine whether to approve or deny the transaction.
ABCD Bank approves the transaction, and the network transmits the approval back to Lola’s POS system. The card issuer charges you $50 for the transaction, and Lola’s bank receives $50 (minus fees).

The whole process takes place within seconds.

Types of Credit Card Networks

Four primary companies act as credit card networks for payment processing:

Visa: This is a payment network only; that is, it doesn’t issue credit cards directly to consumers, though you will see the Visa logo appearing on many cards to identify the company’s association with the card’s payment network. Visa also oversees the Visa Signature benefits associated with certain credit cards, such as premium rental car privileges and hotel perks.
Mastercard: Again, this is only a credit card network, but it has its own suite of card protections and benefits, such as identity theft protection and extended warranties.
American Express: American Express is a credit card network and card issuer that both issues credit cards and processes payments for cards bearing its logo.

It also offers cardholder benefits like travel insurance.
Discover: This is both a card network and card issuer, offering benefits like secondary rental car collision insurance.

Retail store credit cards may operate on their own, smaller credit card networks, limiting you to making purchases with your card only at those stores.

Note

When shopping at a new store or in an unfamiliar place, investigate beforehand which credit card networks are accepted. Consider keeping multiple (and different) cards from different card networks or just plain old cash in your wallet so you will always have a backup payment option.

What Credit Card Networks Mean for You

The payment network your card operates in is important, because merchants aren’t required to accept credit cards from every payment network. A grocery store or gas station may accept Mastercard or Visa but not American Express or Discover credit cards. If you’re traveling, card networks overseas may vary from what you’re used to in the United States. If you routinely spend money at the same merchants or have multiple credit cards operating in different card networks, that might not be a problem, but if you’re planning to travel outside of the United States and only have cards from one network, like American Express, be sure to view the maps of acceptance locations on the card network’s website.

Acquiring banks incur interchange and other fees to process card payments, so merchants sometimes choose and accept credit card networks based on cost. Fees vary, but some networks are more expensive for merchants to use than others. American Express, for instance, tends to charge higher fees than its competitors. If a retailer is keeping a close eye on the bottom line, it may opt to accept payments only on low-fee card networks, which might be a money-saver for them but inconvenient for you.