What is a Card Scheme (Card Network)?

A card scheme, also known as a card network or card brand, is the structure used in carrying out payments by cardholders and merchants, as well as the issuing and acquiring banks. Such institutions provide the structure for how the process should be done, approve the brand, and provide the necessary technology to facilitate payments.

In a normal open-loop system, the arrangement governs the interaction between the parties; distribution of cards or lending of money is not included in the arrangement because it is an administrative task only.

A card network’s core function is to link the merchant’s bank (acquirer) with the cardholder’s bank (issuer) and manage the exchange of payment details between them.

Here’s how the process goes:

1. The customer signs up or chooses to renew their subscription; the merchant submits a request to their acquiring bank or processor.
2. The acquirer then routes the request to the card network, which forwards it to the issuing bank.
3. The issuing bank approves or declines, and the response returns to the merchant through the same channels.

The steps include three stages: autorização (checking availability of funds), clearing (verifying transaction information), and settlement (transferring the actual funds). When processing recurring subscription payments, this cycle repeats for every renewal date. During a payment cycle, if a card reaches its expiration or a minor network delay occurs, a transaction might not go through, but each billing attempt follows the same established process.

It comes down to the number of entities involved between the cardholder and the merchant.

The four-party system – comprising cardholder, issuer, acquirer, and merchant – is widely used for processing card transactions. Approximately 95% of card payments within Europe go through the four-party setup. This arrangement is frequently selected by companies handling transactions across different regions.

Visa and Mastercard use the 4-party model because it scales through open participation – any eligible financial institution can join as an issuer or acquirer.

Using this approach, banks are able to issue cards or work with merchants without Visa or Mastercard having to assume lending risk, which in turn leads to more merchants. While this model results in greater involvement from merchants and consumers, it also introduces complexity throughout the network. For software companies that operate internationally, the primary outcome is the ability to accept cards from different banks without managing a separate agreement with each one. cards issued almost anywhere without building bank-by-bank relationships.

Card schemes primarily generate revenue through service fees connected to transaction volume, rather than from interchange.

Their income usually comes from a mix of sources:

• Scheme or assessment fees
• Charges for transfronteiriço e conversão de moeda transações
• Data processing fees
• Value-added services, such as risk management, atualizador de contas tools, data reporting, and chargeback solutions)

At checkout for a subscription, a customer inputs card details – the gateway de pagamento forwards this data to the acquirer.

The acquirer, in turn, sends the request to the card network and then on to the banco emissor for approval. After it’s approved, funds are moved through stages like clearing and settlement, eventually resulting in payment – minus any fees – for the merchant. Optionally, some businesses choose to add tools such as fraud checks, tokenizaçãoou 3-D Secure during a card transaction process.

Key players:

• Gateway de pagamento — collects and passes customer card data
• Rede de cartões — relays transaction information between banks
• Issuer and acquirer — make authorization decisions and move funds