Back to Basics: Card Network Models and Global Card Costs

Payment professionals are constantly navigating a stream of new and emerging developments that impact both the broader industry and their day-to-day business operations. While it seems like everything in the world of payments is continually changing, there is one constant we can rely on: card payments and their cost structure continue to be important considerations for merchants worldwide. It’s easy to get lost in all the details, so we want to bring it back to the basics with an overview of card payments, focusing on their supply chain and the factors that determine their costs.

Card payments are typically facilitated by either three- or four-party card network models. Each model consists of unique set-ups and associated merchant fee structures.

Four-Party Card Networks

Examples: Visa, Mastercard, Girocard, Interlink, eftpos

The four-party card network model consists of consumers, issuers, merchants and acquirers. When operating with a four-party card network, merchants typically only interact directly with their customers and card acquirer and generally not with the networks or issuers; the networks usually act as “referees” in this model.

Key Players

Card Acquirer

An acquirer, also known as a ‘merchant acquiring bank’ or a card processor, is a bank or financial institution that manages the technical acceptance of payment cards for the merchant and ensures that funds from the cardholder are transferred to the merchant’s account.

Card Issuer

The issuer, also called the ‘cardholder’s issuing bank’, is typically a bank, credit union, or financial institution that supplies a consumer with a payment card to facilitate card transactions and represents the customer in those transactions.

Card Network

A card network, also known as a card scheme, such as Visa or Mastercard, acts as an intermediary that enables communication and transaction processing between the issuer and the acquirer. These networks also set the rules and standards for transaction authorization, determine the default interchange fees, and monitor the resolution of chargeback disputes.

Merchant Service Charge

The Merchant Service Charge (MSC), referred to as the Merchant Discount Rate (MDR) in the U.S., is the fee a merchant pays for accepting a card transaction. The MSC typically comprises three core components: interchange, network, and acquirer fees. Each fee flows to a different stakeholder within the payments system. The merchant pays the MSC to the acquirer, who then distributes the appropriate portions to the card issuer (interchange) and the card network (network fee).

Interchange Fee

Interchange is typically the largest component of the merchant service charge (MSC). It is usually set by the card networks and paid by the merchant, via the acquirer, to the card-issuing bank. In some markets, including the U.S., EU, Australia, and New Zealand, interchange fees are subject to regulation.

Network Fee

Network fees, also known as scheme fees, are paid to the card network by the merchant via the acquirer. As shown in the table above, these fees are also incurred by issuers.

Acquirer Fee

The acquirer cost, or processor cost, is the fee the acquirer, or processor, receives from the merchant.

Three-Party Card Networks

Examples: American Express, Discover

In a three-party card network, a single entity acts as the issuer, acquirer, and network—connecting consumers and merchants directly. Unlike four-party models, merchants interact with just one financial institution that fulfills all three roles. As a result, fees such as interchange, network, and acquirer fees are typically bundled into a single, blended charge.

Dual-Message vs. Single-Message Debit Transactions

Dual-message transactions involve two separate communications between the merchant’s acquirer and the issuer: one to authorize the customer’s account and another to settle the transaction by withdrawing funds. This structure allows for flexibility—such as when the final transaction amount differs from the initial authorization, as in transactions that include tips.

Single-message transactions, by contrast, combine authorization and settlement into one message.

Global Costs

A comparison of average card fees across markets reveals significant variation between countries. Data shows that merchants in the U.S. and Japan face notably higher credit card fees than those in many other regions. One key factor behind these elevated costs may be the more hands-off regulatory approaches to credit card fees in both countries.

As the payments industry continues to evolve, navigating complex cost structures and card payment fees remains a critical challenge for merchants around the world.