Summary - Part 1
Lesson 1 - Institutional Roles in issuing and processing Credit Cards
Processor Networks - Visa, Mastercard, Amex, discover
ISSUER - Bank A in example - Become members of the network. They can issue credit cards, extend credit, make money off fees, etc.
Processor networks issue credit card numbers through banks to their customers with unique numbers.
The customers then build a balance to pay it off later, or carry balance and carry interest (which is usually high and best paid of quickly).
ACQUIRER - Banks become Acquirers and obtain retailers as clients. Retailers must have a relationship with a member of the processor network to accept their payment type. They banks charge them a small percentage in order for the convenience of allowing credit cards as payment which benefits them by having more payment types as options. Acquirers get paid more fee transactions the more retailers they obtain as clients.
When customer gives credit card to retailer it checks for AUTHORIZATION - Banks have proprietary network, it ensures the customer is valid and good for the money, then the transaction goes forward. It checks from bank to processor network (IE Visa) back to the bank and back to retailer.
WHO GETS PAID:
Store sells $100 of groceries ~2% (discount rate) goes to ACQUIRER (bank B) BANK A keeps ~$1.70 (interchange fee) Set by the processor networks. It's bank A's cut. Bank A also earns all interest on the card if not paid back on time. PROCESSOR GETS ~$.10 - .001 of the transaction for handling the transactions and allowing credit card use. BANK B keeps ~$.20 - what is leftover after processor fee and interchange fee. Their cut comes from a percentage of the transactions made by retailers they've acquired.
The Issuer "bank a" then sends $98.30 to the Processor Network. The Processor Network keeps $.10 and then sends $98.20 to the acquirer "Bank B". The acquirer then sends the retailer $98.
To use the infrastructure and convenience of credit cards the retailers pay approximately 2% per transaction.