Card scheme
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Card schemes are payment networks linked to payment cards, such as debit or credit cards, of which a bank or any other eligible financial institution can become a member. By becoming a member of the scheme, the member then gets the possibility to issue cards or acquire merchants operating on the network of that card scheme.[1][2] Visa and MasterCard are two of the largest global brands, known as card schemes, or card brands. Billions of transactions[3] go through their cards on a yearly basis.
Types
The card schemes come in two main varieties - a three-party scheme (or closed scheme) or a four-party scheme (or open scheme).
Three-party scheme
A three-party scheme consists of three main parties as described in the adjacent diagram.
In this model, the issuer (having the relationship with the cardholder) and the acquirer (having the relationship with the merchant) is the same entity. This means that there is no need for any charges between the issuer and the acquirer. Since it is a franchise setup, there is only one franchisee in each market, which is the incentive in this model. There is no competition within the brand; rather you compete with other brands.
Examples of this setup are Diners Club, Discover Card, and American Express, although in recent times these schemes have also partnered with other issuers and acquirers in order to boost their circulation and acceptance, and Diners Club now operates as a four-party scheme in many regions.
Four-party scheme
In a four-party scheme (also referred to as Four Corners Model, the issuer and acquirer are different entities, and this type of scheme is open for other institutions to join and issue their own cards. This is the type of card scheme used by brands such as Visa, Mastercard, Verve Card, UnionPay and RuPay (Indian). There are no limitations as to who may join the scheme, as long as the requirements of the scheme are met.
Processes
The card scheme utilizes the respective guidelines[4][5] to process the card exchange data from the acquiring to the issuing bank, and vice-versa, until the payment is fully completed (or denied). Credit and debit cards work with four-party scheme, completing an open-circle framework that permits consistent flow of transactions; thus, allowing the banks to handle the whole process.
References
- ^ Rupp, Martin (April 22, 2021). "Cardholder, Merchant, Issuer & Acquirer - The Four Corners Model for Payment Security and Key Management". Cryptomathic.
- ^ Études et activités bancaires et financières (January 2013). "An interbank payment card system for the benefit of all" (PDF). Fédération Bancaire Française.
- ^ de Best, Raynor (July 09, 2021). "Number of purchase transactions on global general purpose card brands". Statista.
{{cite web}}: Check date values in:|date=(help) - ^ Summary of changes 2020 (December 2020). "Mastercard card scheme - Rules and guidelines" (PDF). Mastercard.
{{cite web}}: CS1 maint: numeric names: authors list (link) - ^ Visa core rules 2021 (April 2021). "Visa card scheme - Product and service rules" (PDF). Visa.
{{cite web}}: CS1 maint: numeric names: authors list (link)
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