Card Networks
The rails that connect everyone, and the companies that own them.
In Modules 1 and 2, the card network appeared as a routing layer: it received authorisation requests from acquirers, forwarded them to issuers, and facilitated clearing and settlement. That is accurate but incomplete. The card networks do far more than route messages. They set the rules that every other participant must follow, they determine the fees that flow through the system, and they are expanding into services that were never part of their original mandate.
Understanding card networks is essential because they sit at the centre of the payments system. Every acquirer, processor, issuer, and merchant operates within the framework the networks define. Their scheme rules dictate everything from how chargebacks work to how tokenisation is implemented. Their fee schedules shape the economics of every transaction.
This module explains how the networks operate, the difference between open-loop and closed-loop models, how scheme fees work, what the networks are building beyond their core rails, and why they remain the most powerful entities in payments.
Card networks are not just infrastructure. They are rule-makers, standard-setters, and increasingly, technology companies. The companies that use their rails do not simply connect to the networks. They operate under them.
Two Models: Open-Loop and Closed-Loop
There are two fundamentally different ways to structure a card network. The distinction matters because it determines who controls the economics, who owns the customer relationship, and how competition plays out.
Four-Party Model
The network operates the rails but does not issue cards or acquire merchants. Those roles belong to thousands of independent banks and financial institutions. The network earns fees from both sides for connecting them.
This creates massive scale. Visa has over 4 billion cards in circulation globally, issued by thousands of banks. No single entity controls the cardholder or merchant relationship.
Three-Party Model
The network issues the card directly to the cardholder and signs the merchant directly. No independent issuers or acquirers in the primary flow. This gives the network complete control over both sides of the transaction and all the data.
The trade-off is scale. Closed-loop networks have fewer cardholders and fewer merchant acceptance points than open-loop networks.
The distinction is not absolute. American Express now issues cards through partner banks (like in the UK, where many Amex cards are issued directly but some co-branded cards exist) and has expanded its merchant acceptance through third-party acquirers. Discover operates the Pulse debit network (which is open-loop) alongside its closed-loop credit network. The models are converging, but the underlying economic logic remains different.
What the Networks Actually Do
Describing a card network as "the rails" undersells what they provide. The networks perform at least six distinct functions, and each one generates revenue and creates dependency.
| Function | What It Means |
|---|---|
| Transaction routing | The core function. Moving authorisation requests from acquirers to issuers and responses back. Maintaining the directory that maps every card number to an issuing bank. Operating at massive scale with sub-second latency. |
| Clearing and settlement | Calculating net positions between acquirers and issuers, deducting interchange and scheme fees, and facilitating the actual movement of funds. The network is the central counterparty that makes multilateral netting possible. |
| Rule-making | Setting the scheme rules that all participants must follow. These rules cover everything from chargeback procedures and liability shifts to data security requirements and acceptance marks. The networks publish rulebooks that run to thousands of pages. |
| Fee-setting | Determining interchange rates (paid by acquirers to issuers) and scheme fees (paid by both sides to the network). The networks set these rates unilaterally. In some markets, interchange is regulated (the EU caps it), but scheme fees are not. |
| Fraud and risk | Operating real-time fraud scoring on transactions as they pass through the network. Visa Advanced Authorization and Mastercard Decision Intelligence both use AI models trained on billions of transactions. Mastercard recently unveiled a generative AI model trained on its transaction data to improve cyber defences and fraud detection. |
| Value-added services | An expanding category: tokenisation (replacing card numbers with tokens for security), data analytics, loyalty programme infrastructure, identity verification, and increasingly, digital infrastructure for new payment types including agentic commerce. Both Visa and Mastercard are running trials for AI agent-initiated payments. |
The networks' power comes not from any single function but from the combination of all six. They route the messages, set the rules, determine the fees, score the risk, and now sell the services that help participants comply with their own mandates. This is a self-reinforcing position.
The Economics: How Networks Make Money
Card networks earn revenue in two main ways: scheme fees on every transaction, and fees for value-added services. They do not earn interchange (that goes to the issuer), but they set the interchange rates, which is arguably more powerful than earning them.
Scheme Fees
Every card transaction generates fees paid to the network by both the acquirer and the issuer. These fees are complex and have been rising steadily. A typical transaction might generate scheme fees of 0.02 to 0.15 percent plus a fixed per-transaction charge, but the actual amount depends on the card type, transaction type, geography, and a long list of other variables.
Scheme fee schedules are notoriously complex. Visa and Mastercard each publish fee schedules that contain hundreds of individual line items, varying by region, card type, transaction channel, and merchant category. These fees are updated twice a year (April and October for Visa, April and October for Mastercard), and the trend has been consistently upward.
This rising cost is a source of tension between networks and merchants. In the US, the Durbin Amendment capped debit interchange but did not cap scheme fees. In the EU, the Interchange Fee Regulation capped interchange but similarly left scheme fees unregulated. The networks have responded by increasing scheme fees to offset the lost interchange revenue, which is exactly what critics predicted.
Value-Added Services
The second and increasingly important revenue stream. Value-added services include tokenisation, fraud prevention tools, data analytics, consulting, and digital identity products. For Visa, value-added services now represent over 25 percent of net revenue and are growing faster than transaction-based fees. Mastercard reports a similar trajectory.
The strategic play is clear: as transaction fees face regulatory pressure in some markets, the networks are building services that acquirers, issuers, and merchants must buy separately. Many of these services address requirements that the networks themselves have mandated. Tokenisation is a good example. The networks mandate its use in certain contexts and then charge for the tokenisation service.
Scheme Rules: The Invisible Architecture
Every participant in the card payments system operates under the scheme rules published by the networks. These rules are not suggestions. Violations can result in fines, restrictions, or removal from the network. For most merchants, the rules are invisible because the acquirer and processor handle compliance. But for anyone building or operating payments infrastructure, the rules are the operating manual.
Scheme rules govern:
- Chargeback procedures. How disputes are initiated, what evidence is required, time limits for each stage, and who bears liability in different scenarios. The rules define the entire dispute resolution framework.
- Liability shifts. Who bears the cost of fraud in different authentication scenarios. If a merchant uses 3D Secure and the issuer approves the transaction, liability for fraud shifts to the issuer. If the merchant does not use 3DS, the merchant bears the liability.
- Data security. PCI DSS compliance requirements, tokenisation mandates, encryption standards, and how card data must be handled at every stage of the transaction.
- Surcharging. Whether merchants can add a surcharge for card payments (legal in some markets, prohibited in others, with network rules on top of local law).
- Honour-all-cards. The rule requiring merchants to accept all cards issued on a network. If you accept Visa, you accept all Visa cards, including premium rewards cards with higher interchange. This rule has been the subject of major antitrust litigation.
- Acceptance marks. How and where the network logos must be displayed at point of sale and on websites.
Mandates: When Rules Become Deadlines
Networks regularly issue mandates that require participants to adopt new standards, technologies, or procedures by a specific date. These mandates are how the networks drive adoption of their initiatives. They are also, not coincidentally, how the networks create demand for their value-added services.
EMV Chip Migration 2015
Liability shift for counterfeit fraud from issuer to merchant for non-chip-capable terminals. Drove universal adoption of chip card readers in the US.
Strong Customer Authentication (SCA) 2021
PSD2 requirement enforced via network scheme rules. Two-factor authentication for online payments in the EEA and UK. Drove adoption of 3D Secure 2.
Network Tokenisation 2024-2026
Both Visa and Mastercard are mandating the use of network tokens (replacing raw PANs) for card-on-file transactions. Phased rollout by market and transaction type.
Click to Pay 2025-2027
Network-backed guest checkout standard (built on EMV Secure Remote Commerce). Intended to replace manual card entry online. Adoption has been slower than expected.
Mandates are the mechanism through which networks shape the industry. They are not optional. When a network says "by this date, all transactions must use network tokens," every acquirer, processor, gateway, and issuer has to comply or face penalties. This is why payments companies watch mandate timelines as closely as they watch their own product roadmaps.
Cross-Border: Where the Fees Multiply
Domestic card transactions are expensive enough. Cross-border transactions are significantly more so. When a UK-issued card is used to pay a US merchant, the transaction crosses network borders, and the fee structure changes dramatically.
Cross-border transactions are highly profitable for the networks. The international service assessment fee (ISA), the cross-border fee, and the currency conversion markup all flow to the network. This is one reason both Visa and Mastercard have invested heavily in cross-border infrastructure and why they view the growth of international e-commerce as a strategic opportunity.
It is also why alternative payment methods, real-time payment networks, and stablecoin-based settlement are gaining traction for cross-border commerce. Mastercard's $1.8 billion acquisition of stablecoin platform BVNK in March 2026 is a direct acknowledgement that on-chain rails may compete with card rails for cross-border flows.
The Networks Beyond Cards
Both Visa and Mastercard have been expanding beyond their core card rails for years. The direction is consistent: become the infrastructure layer for all types of payments and financial transactions, not just card payments.
| Initiative | What It Does |
|---|---|
| Visa Direct / Mastercard Send | Push-payment networks that move money directly to cards or accounts. Used for disbursements, P2P transfers, and gig economy payouts. Bypasses the traditional acquiring flow entirely. |
| Visa B2B Connect / Mastercard Cross-Border | Non-card networks for business-to-business payments. Competing with SWIFT for high-value cross-border corporate payments. |
| Open banking | Both networks have acquired open banking platforms (Visa acquired Tink, Mastercard acquired Finicity) to enable account-to-account payments and data access. |
| Crypto and stablecoins | Visa's stablecoin settlement capabilities and Mastercard's BVNK acquisition position both networks to participate in on-chain payment flows. |
| Agentic payments | Both networks are running live trials for AI agent-initiated payments. Visa is testing with Santander in Latin America. Visa and Mastercard are both recruiting banks in the UK and Europe for issuer trials. The question is whether card rails are the right infrastructure for autonomous commerce. |
The strategy is defensive as much as it is expansive. Real-time payment networks (like FedNow in the US, Faster Payments in the UK, and UPI in India) threaten to disintermediate card networks for certain transaction types. Account-to-account payments bypass the card rails entirely. By acquiring capabilities in these areas, the networks are ensuring they remain relevant regardless of which rails win for specific use cases.
The card networks are no longer just card networks. They are positioning themselves as the connective tissue for all forms of value transfer. Whether they succeed in this ambition or face genuine displacement from alternative rails is one of the defining questions in payments over the next decade.
Regulation: The Constraint on Network Power
Card networks have attracted significant regulatory attention, precisely because of the power we have described. The most consequential interventions:
| Regulation | What It Does | Market |
|---|---|---|
| Interchange Fee Regulation (IFR) | Caps consumer credit card interchange at 0.3 percent and debit at 0.2 percent. Significantly reduced issuer economics on European card payments. | EU / EEA |
| Durbin Amendment | Caps debit interchange for large issuers at roughly 0.05 percent + $0.21. Only applies to debit. Credit interchange remains unregulated (but under political pressure). | US |
| PSD2 / PSD3 | Opens banking data and payment initiation to third parties. PSD3 (in development) is expected to strengthen open banking and further regulate card surcharging and scheme fees. | EU |
| Antitrust litigation | Visa and Mastercard have faced decades of antitrust challenges over interchange, honour-all-cards rules, and surcharging restrictions. The US merchant class action settlement in 2024 (valued at over $5 billion) is the largest such case. | US / Global |
The regulatory trend is clear: interchange is being capped or challenged in more markets, scheme fees are coming under scrutiny, and alternative payment methods are being promoted as competitive alternatives to card networks. For anyone building a career in payments, regulatory literacy is not optional. It is a core competency.
Key Takeaways
- Open-loop networks (Visa, Mastercard) connect independent issuers and acquirers. Closed-loop networks (Amex, Discover) control both sides of the transaction.
- Networks perform six functions: routing, clearing/settlement, rule-making, fee-setting, fraud prevention, and value-added services. Their power comes from the combination.
- Scheme fees are complex, rising, and largely unregulated. They are the primary revenue source for networks and a growing cost for acquirers and issuers.
- Value-added services (tokenisation, fraud scoring, data analytics) are the fastest-growing revenue segment. Many address requirements the networks themselves mandate.
- Scheme rules and mandates shape the entire payments industry. Compliance is not optional, and mandate timelines drive product roadmaps across the ecosystem.
- Cross-border transactions are dramatically more expensive than domestic ones and are a major profit centre for the networks.
- Both Visa and Mastercard are expanding beyond cards into real-time payments, open banking, stablecoins, and agentic commerce infrastructure.
- Regulation (IFR, Durbin, PSD2/PSD3, antitrust) constrains network power but has not yet fundamentally disrupted their position.
Glossary
If real-time payment networks, stablecoins, and open banking continue to grow, can the card networks adapt fast enough to remain at the centre of payments? Or is the era of network dominance approaching its end?