The working of a credit card involves the transfer of money through different levels and entities. When the customer purchases something and swipes the credit card in order to pay for it, the amount to be paid is transferred by the card issuing company. The money then passes through an entity called a credit card association. The credit card association further transfers the money to the merchant’s account which is present with the acquiring bank and the transaction gets completed.
In a way, the credit card association acts as a connection between the both, the credit card issuing bank and the acquiring bank.
Credit card associations do not issue credit cards themselves. They only provide a payment method to the customers as well as the banks and financial institutions that offer credit cards. Also, a credit card association is nowhere concerned with the annual fees, interest charges, overdraft fees and other bills charged to the customers by the issuing company.
The revenues of these associations are generated by the stores, retail outlets and merchants who accept the customer’s credit card as payment for the products purchased or services that were catered. When the amount is being transferred from the card holder’s credit card to the merchant’s account, a small percentage is charged to the merchant. This amount is charged to the merchant for making use of the payment method which is provided by that particular credit card association. The terms of transactions are set by these credit card associations for different parties involved in the transaction which include the issuing bank or financial institution, the merchant or business which accepts credit card payments and the acquiring bank.
Visa and MasterCard are some of the most popular examples of such credit card associations. Credit cards branded by Visa as well as MasterCard are generally accepted across majority of countries world over. Apart from these two, even American Express and Discover are some credit card associations in the market.
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