What are Visa, Mastercard, Rupay ??
There is a very high probability that you are having a Credit Card or Debit Card if you are reading this post.
On a credit card or a debit card, you might have seen the logos of Visa or Mastercard, or Rupay. Ever wondered what are they?
They are card networks.
What do they do?
They manage the payment network to facilitate card transactions. They bring trust to the whole payment transaction.
What is a payment network?
To understand that, let’s understand different players in the whole card payment transaction.
Customer
A customer is someone who uses the card to pay for their purchases.
Let’s say, you have a card. So, you are the Customer
Issuer
An issuer is a bank or financial institution that issues a card to its customers.
Let’s say, you have a card from Axis Bank. So, Axis bank is the issuer of your card. Generally, the Issuer’s name/logo is printed on the card.
Merchant
A merchant is someone who accepts a card to pay for their products/services from their customers.
Let’s say, you are shopping at Big Bazaar, and they accept cards. Big Bazaar is the merchant.
Acquirer
An acquirer is a bank or financial institution, who facilitates the merchant to accept the card payments. They provide Point of Sale (POS) machines, generally called swiping machine to the merchant.
Let’s say, HDFC Bank provides the POS machine to Big Bazaar, HDFC Bank is the Acquirer.
Card Network
This is the network on which the card is issued.
Let’s say your card has the logo of Visa. So, Visa is the card network here.
Card Transaction
Now, let’s try to understand how a card transaction happens. There are two legs to the transaction.
Request
Response
Request
When your card is swiped at the POS machine, HDFC Bank (acquirer) will send a request with details like Transaction Amount, Card Number, Expiry Date, etc. to Visa.
Visa will forward the request to Axis Bank (issuer).
Axis Bank gets the request, reviews the card details and approves the transaction, and debits the amount from Customer’s account.
Response
Axis Bank will send the success response back to Visa.
Visa will send the response to HDFC Bank.
HDFC Bank will display that transaction is successful on the POS machine.
Big Bazaar will deliver the goods to you.
In this transaction, the merchant got a confirmation from your bank (Axis Bank) that money is debited from the card and the merchant will get the amount. With that confirmation, the merchant delivered the goods to you.
What role did Visa play here?
Visa played the role of a bridge between HDFC Bank (Acquirer) and Axis Bank (Issuer).
Let’s say Visa is not there in the transaction.
When the card is swiped, HDFC Bank will not be able to connect with Axis Bank as HDFC Bank does not know who issued the card and Big Bazaar will not get money.
You may ask why not HDFC Bank directly connect with Axis Bank. Yes, they can.
But, the main challenge is that there are hundreds of banks in India. Why is that a challenge? Let’s try to understand that.
Let’s say, there are just 3 banks in India. If they connect between them, there will be 6 connections between them, as depicted below. This is simple.
If there are 5 banks, there will be 20 connections among them, and you can observe below that it is more complex than just 3 banks.
As there are hundreds of banks in India, there will be thousands of connections between them to connect among themselves. It will be a nightmare to have such connections as different banks use different systems, technologies and integrating between them would be very challenging.
To avoid this, Card Networks are there.
So, a bank can just connect with a Card Network and Card Network will take care of connecting with other banks in the Network as depicted below.
Card Networks make sure that the money moves from Axis Bank (Issuer) to HDFC Bank (Acquirer) after your transaction is successful.
That’s how they bring trust to the whole system.
So, Card Networks manage this payment network of connecting with different banks in the ecosystem and allow card payments.
Fine Hemanth. This is interesting.
You may ask - How will the POS machine know that the card is issued by Visa or Mastercard or Rupay network?
I will talk about that in my next article !! See you soon
I would love your feedback. You may reach out to me on hemanth.finshare@gmail.com or on Twitter
Disclaimer
The author is not affiliated with any banks, products, networks, companies mentioned in this article. This blog is only for educational purposes. All the logos mentioned in this post are owned by respective companies.