How Does Visa & Mastercard Make Money
Arthur Bedel 💳 ♻️
Co-Founder @ Connecting the dots in Payments... | Global Revenue at VGS | Board Member | FinTech Advisor | Ex-Pro Tennis Player
𝗛𝗼𝘄 𝗱𝗼𝗲𝘀 Visa / Mastercard 𝗺𝗮𝗸𝗲 𝗺𝗼𝗻𝗲𝘆? - deep dive into the most successful payments companies👇
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Let’s take a look at the current payment ecosystem today:Core:
🔸Card Schemes - Visa , Mastercard , American Express
Additional:
🔸Payment Orchestration - Gr4vy , Cybersource , ACI Worldwide
🔸Token Vaults - VGS , Basis Theory , Spreedly
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This 6-step diagram shows the economics of the credit card payment flow (by Alex Xu ):
1️⃣ The cardholder pays a merchant $100 to buy a product.
2️⃣ The merchant benefits from the use of the credit card with higher sales volume, and needs to compensate the issuer and the card network for providing the payment service. The acquiring bank ( Nuvei / Stripe ) sets a fee with the merchant, called the “𝐦𝐞𝐫𝐜𝐡𝐚𝐧𝐭 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭 𝐟𝐞𝐞.”
3️⃣-4️⃣ The acquiring bank keeps $0.25 as the 𝐚𝐜𝐪𝐮𝐢𝐫𝐢𝐧𝐠 𝐦𝐚𝐫𝐤𝐮𝐩, and $1.75 is paid to the issuing bank ( Chase / Revolut ) as the 𝐢𝐧𝐭𝐞𝐫𝐜𝐡𝐚𝐧𝐠𝐞 𝐟𝐞𝐞. The merchant discount fee should cover the interchange fee. The interchange fee is set by the card network ( Visa / Mastercard ) because it is less efficient for each issuing bank to negotiate fees with each merchant.
5️⃣ The card network sets up the 𝐧𝐞𝐭𝐰𝐨𝐫𝐤 𝐚𝐬𝐬𝐞𝐬𝐬𝐦𝐞𝐧𝐭𝐬 𝐚𝐧𝐝 𝐟𝐞𝐞𝐬 with each bank, which pays the card network for its services every month. For example, Visa charges a 0.11% assessment, plus a $0.0195 usage fee, for every swipe.
6️⃣ The cardholder pays the issuing bank for its services. Why should the issuing bank be compensated?
► The issuer pays the merchant even if the cardholder fails to pay the issuer.
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► The issuer pays the merchant before the cardholder pays the issuer.
► The issuer has other operating costs, including managing customer accounts, providing statements, fraud detection, risk management, clearing & settlement, etc.
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Traditional card payments have been around for decades, ruling the overall payment space. They aren’t going anywhere buuuut other forces are driving innovation & need to be brought into your payment stack for cost efficiency, higher acceptance and speed:
🔸Real Time Payments
🔸Open Banking
🔸Buy Now Pay Later
🔸Digital Wallets & Super Apps
🔸Embedded Payments (white-labeling)
🔸Digical Currencies and #CBDCs
🔸Crypto Payments
Technology is driving & disrupting payments continuously! #OpenBanking, #EmbeddedFinance rise of digital currencies, #AI boom and many more forces are the future 🚀
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Source: Alex Xu & ByteByteGo
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Planning and Performance Manager | Pricing | Business Analytics | Strategic Planning | Data Science | Business Intelligence
9moArthur Bedel's article is an excellent resource for newcomers to the financial services sector. It demystifies how Visa and Mastercard profit, making it an essential read for anyone looking to understand the fundamentals of payment networks. The clarity and depth of the analysis are commendable, offering valuable insights into the complexities of digital transactions.
Digital Payment Specialist at @Payless Africa | Providing financial & Product Solutions for Tech companies
9moInsightful breakdown! Your analysis of the evolving payment landscape is spot-on. Traditional card payments remain fundamental, but embracing innovations like real-time payments and digital currencies is crucial for staying ahead. Your expertise shines through, and I eagerly anticipate further insights from The Payments Brews!
Diagnosing and Treating Payment Issues for State and Local Government Agencies | Resilient Sales Leader | Business Development Professional
9moAnother insightful post!
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9moIt's fascinating to see the intricate process behind every transaction. The evolution of the payment industry is definitely an exciting journey to follow Arthur Bedel 💳 ♻️
President @ AFCSOA • 20+ Yrs in Fare Payments • Award-Winning AFC & NFC Solutions Architect
9mo"5️⃣ The card network sets up the 𝐧𝐞𝐭𝐰𝐨𝐫𝐤 𝐚𝐬𝐬𝐞𝐬𝐬𝐦𝐞𝐧𝐭𝐬 𝐚𝐧𝐝 𝐟𝐞𝐞𝐬 with each bank, which pays the card network for its services every month. For example, Visa charges a 0.11% assessment, plus a $0.0195 usage fee, for every swipe." It sounds a bit confusing. When you say each bank, does it mean acquiring banks pay assessments and usage fees, too?