How does VISA (& Mastercard) make money?

This 6-step diagram shows the economics of the Credit Card payment flow

How does VISA (& Mastercard) make money?

This 6-step diagram shows the economics of the Credit Card payment flow:

1️⃣ Cardholder Payment:

The cardholder pays a merchant $100 to buy a product.

2️⃣ Merchant Discount Fee:

The merchant benefits from higher sales volume by accepting credit cards, and compensates the issuer and card network for providing the payment service. The acquiring bank sets a fee with the merchant, known as the merchant discount fee.

3️⃣-4️⃣ Acquiring Markup & Interchange Fee:

• The acquiring bank keeps $0.25 as the acquiring markup.

• $1.75 is paid to the issuing bank as the interchange fee. The merchant discount fee generally covers the interchange fee.

• The interchange fee is set by the card network to avoid the inefficiencies of each issuing bank negotiating fees with each merchant.

5️⃣ Network Assessments & Fees:

The card network establishes network assessments and fees with each bank. These fees are paid monthly by banks to the card network. For instance, VISA charges a 0.11% assessment plus a $0.0195 usage fee for every swipe.

6️⃣ Cardholder to Issuer Payment:

The cardholder pays the issuing bank for its services.

Why is the issuing bank compensated?

• The issuer pays the merchant even if the cardholder fails to pay.

• The issuer pays the merchant before the cardholder pays the issuer.

• The issuer incurs operating costs for account management, statements, fraud detection, risk management, and transaction processing.

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