How the Merchant Services Industry is Designed

Visa and Mastercard are the most well known payment services. These two companies are set up as member institutions, that’s why they’re known as bankcards. In order to become a customer of Visa and Mastercard, you have to be a financial institution such as a bank.

Member banks need to offer cash advances on Visa and Mastercard cards at teller windows. These member banks also have a Bank Identification Number known as a BIN.

American Express, Diners Club, Discover and JCB are common but not as popular as Mastercard and Visa. These companies are structured differently. They don’t have member banks, they’re self contained and control the issuing, payment, fraud and disputes.

Visa and Mastercard do not:

  • Establish criteria for evaluating applicants
  • Set credit limits offered to cardholders
  • Issue credit cards

Visa and Mastercard do manage these features:

  • Advertising and Branding for their programs
  • Develop new products
  • Set up regulations to use and accept bankcards

Member Banks/Issuers:

Member banks need to show Visa or Mastercard their intended use for the cards. They need to have a clear plan for issuing these card to consumers.


  • Acquisition of new customers
  • Processing applications
  • Overseeing manufacturing of cards
  • Managing PIN numbers
  • Providing customer service
  • Processing payments

When a bank is so small that they can’t manage an expensive credit card program, they act as an Agent Bank.


The acquirer is normally a Visa or Mastercard member. They contract with merchants to accept merchant sales, authorize terminals, support and credit card transactions.

Key Responsibilities:

  • Sales
  • Fraud Investigation
  • Pricing
  • Merchant Acceptance
  • Support Services
  • Risk Management

Examples of Acquirers:

  • Chase
  • National Processing Company
  • Paymentech
  • Nova


Processors are companies contracted by a member bank to manage transactions. With high technological costs of electronic payments, many members don’t have the necessary resources to create their own transaction network.

Example of Processors:

  • Global Payment Solutions
  • First Data Resources
  • Vital


An independent sales organization is a non-association organization that performs services on behalf of the member bank.


A merchant is an acquirer that sells services and accepts VISA/Mastercard as payment.

Bankcard Fees:

Listed below are examples of bankcard fees:

  • Interchange
  • Authorization Fees
  • Processing Fees
  • Processor Optional Fees
  • Chargeback Fees
  • Hardware and Software Fees


Visa and Mastercard maintain the funds between issuers and acquirers. During interchange, fees get deducted by the issuer for the transaction and the issuer pays the net amount to the acquirer. This transaction is known as interchange fees.


In summary, Visa and Mastercard are direct competitors.

Cards are given to customers with a specific spending limit. This depends on interest rates and fees.

A member bank could be both a card issuer and a merchant acquiring establishment.

Interchange fees change depending on the type of card and how it is accepted.







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