When you make a purchase on your credit card, what actually happens? Someone pays someone else, and you get billed for it all later, right?
Unsurprisingly, it’s a bit more complicated than that.
To make card-based transactions possible, there needs to be near-instantaneous communication between your card, the merchant, and the merchant’s bank. All of these steps don’t just happen by accident; they’re facilitated by your credit card’s payment network.
A payment network is made up of the infrastructure that allows card purchases to take place. When you swipe your card at a merchant, the payment network acts as the go-between for your card provider at the merchant, recording the transaction details and delivering the payment.
While that may sound like it’s none of your concern, some of the components of your card’s payment network can actually have a pretty big impact on how you do business.
What You Need to Know About Networks
There are two major factors to keep in mind when thinking about different card networks: network size and network benefits. Here’s a deep dive into how those two factors might affect your card choice:
There are four major card payment networks — Mastercard, Visa, American Express, and Discover — but the list of all networks is much longer. This list by Business Insider gives a sense of how broad these networks truly are, both in number and in reach.
Of the four, only American Express and Discover are also card providers (Mastercard and Visa are networks that other card providers tap into). You probably have at least one card that belongs to one of these payment networks, and for good reason: It’s the size of a payment network that dictates where you can and can’t use your card.
Vendors are required to pay a small fee per transaction made with a card, and different payment networks have different fee structures. A report by Square shows that of the four major networks, American Express generally has the highest fee per transaction, which might discourage some small vendors from accepting it as an option. To offset this, American Express caters to more affluent users.
Of course, network size is of little issue if all of your usual vendors accept whatever payment network your preferred card uses. For constant travelers or frequent patrons of small businesses, however, relying too heavily on one payment network might leave you exposed — you’ll always run the risk of ending up somewhere that doesn’t support your card.
Chime’s Chonce Maddox explains the importance of having different types of cards at your disposal for situations like these. If you don’t use cash but want to be sure you can do business with any merchant, check that your cards operate on different payment networks.
While people often think of benefit and reward programs as being tied to specific credit cards, it’s actually a bit more complicated than that. While card providers have the final say on what rewards come with their card, card networks often have their own sets of perks that come with being part of their network.
For networks like American Express and Discover, network benefits tend to dovetail with the perks of the cards they provide. Visa and Mastercard, however, offer different levels of benefits that may or may not come with the card you carry.
Your provider might include all of the traditional perks offered by Visa or Mastercard, but they might also block them in favor of including their own. Kevin Cash and Paul Soucy at Nerdwallet do a good job of distinguishing between the two and giving a basic overview of the perks each network offers.
What about those smaller card networks? Although they’re used by fewer vendors, they also come with their own valuable set of benefits.
When looking at potential credit cards, don’t just look at the perks they offer; look at the perks that their network offers as well. There’s a chance your provider might be holding back on some important ones, such as zero fraud liability or price protection, that the network normally offers. When in doubt, shop around.
Although it may not showcase major distinctions between the four major payment networks, be sure to read the fine print. And if you still can’t find what you’re looking for, consider smaller payment networks.
If nothing else, your card’s payment network matters for one important reason: Your ability to make purchases with plastic depends on it.