Skip to main content

Credit card issuers vs networks: What's the difference?

minute read

    We all know that credit cards are an extremely convenient way to pay for things. All you need to do is swipe or tap that piece of plastic at your favorite store, and just like that — your item is paid for when you pay your balance! Sounds pretty simple, right? However, behind the scenes things are a little more complex.

    There are two very important parties that are often overlooked, but are instrumental in making sure your credit card transactions go through smoothly. They're called credit card issuers and credit card networks and they're involved every time you use your card. These issuers and networks work quickly and seamlessly behind the scenes to process the payment.

    While both are indispensable to processing credit card transactions, there are crucial differences between the two. This article will outline what you need to know about both parties, including:

    • What are credit card issuers?
    • What are credit card networks?
    • How do credit card networks and issuers work together?

    What are credit card issuers?

    Credit card issuers are lenders. These are banks that are financially responsible for the card. Card issuers take on the inherent risk of lending unsecured credit to consumers. When you apply for a card, you do so through the issuer. Here are a few things that credit card issuers do:

    • Approve or deny credit card applications
    • Set the terms and conditions of the card
    • Decide the benefits and features of the card
    • Pay for transactions on behalf of the user
    • Collect payments from the cardmember
    • Provide customer service

    What are credit card networks?

    Credit card networks are facilitators. They facilitate transactions between merchants and card issuers. Credit card networks create virtual payment infrastructures in which merchants can receive their payments. Networks then charge the merchant an interchange fee (or swipe fee) for processing a consumer transaction.

    The four major credit card networks are Visa, Mastercard, American Express and Discover. Two of these, American Express and Discover, serve as both the network and issuer.

    Not all merchants accept credit cards from all networks. Before starting your purchase, make sure to inquire if the card you are planning to use is accepted. You might see accepted logos in the online checkout process, or physical signs near the entrance of the store or checkout area.

    How credit card networks and issuers work together

    In order for merchants to process purchases made by consumers, networks and issuers have to work together.

    The transaction goes through two stages:

    1. The credit card network processes the payment. The network will verify with the issuer that the card is active and has enough funds available to cover the transaction.
    2. The credit card issuer pays the merchant. The issuer is then responsible for paying for the transaction on behalf of the cardmember.

    Let's walk through an example. If you were to use your Chase Freedom Unlimited® card to buy groceries from a store, there would be four parties involved in this transaction — the cardmember, the merchant, the network and the card issuer. Here's the step-by-step breakdown, all of which happens in a matter of seconds:

    1. You, the consumer, pay for your groceries at checkout by swiping, tapping or inserting your Chase Freedom Unlimited card.
    2. The store, known as the merchant, sends the transaction to the network. In this case, the network is Visa.
    3. Visa then sends the transaction to the card issuer, Chase.
    4. After reviewing the transaction, Chase approves or denies the purchase and sends that decision back to Visa.
    5. Visa let's the merchant know the decision, and this is when your charge will be either approved or denied at checkout.
    6. This transaction is added to your credit card statement and the amount is deducted from your credit limit.

    In conclusion

    Despite this whole process happening almost instantaneously after you swipe or tap your card, there are many important steps taking place behind the scenes to ensure your transaction is processed correctly and securely.

    Ideally, you have a diverse selection of credit cards from multiple networks and issuers so you'll always have one that works no matter where you shop.

    What to read next