The analysis of a person with experience in payments: what Visa and Mastercard are actually doing has gone viral on Hacker News (560 votes). It starts with a list of what networks don't do. They don't issue the cards—the issuers, banks like Chase or Capital One, do. They do not make cash terminals and online checkouts - this is processing. They do not connect or underwrite stores - these are acquiring companies, banks and companies like Stripe, Square, Adyen. They don't print plastic or make iron. There are four jobs left: sending messages through your own telecom network, coordinating the banking network for payments, setting commissions and rules, and settling disputes.
Transaction mechanics. Authorization - routing a request from the merchant to the issuer, who approves or denies it. The card number (PAN) works like an address, the first 6-8 digits (BIN) indicate the issuer. Approval puts a hold, and clearing is the transfer of the final amount, with a tip or cancellation. Visa makes settlement a netting: all debits and credits of each participant are counted per day, and at the end of the day one total amount is transferred. The scale is from the Visa report for 2024, which the author quotes: $11.2 billion of liquidity is held specifically for daily settlements in case one of the client banks is unable to pay; the maximum daily exposure for the financial year is 137.4 billion, the average is 84.3 billion.
Where does the 2.5 percent go?
Analysis of a $100 transaction in the USA. The merchant gives 2.5% (2.50) - merchant discount rate. The processor keeps 0.35% for itself, transfers 2% (2.00) to the issuing bank - this is interchange - and 0.15% (0.15) to the network, this is the assessment fee. The issuer takes the most, the network itself takes the least, by an order of magnitude. The rationale is risk: the issuer is responsible for the stolen card instead of the holder and bears the credit risk by paying for the approved transaction even when the customer defaults on the debt.
From this layout follows what is seen in life. Cashback and miles are financed by interchange, so in the EU, where interchange is limited to 0.3%, there are almost no generous cards, and bank transfers are more popular. It makes sense to bargain about the rate with the processor: its share in the example is 0.35%, it passes on the rest and cannot give up.
Network Rules is a publicly accessible volume of 923 pages. The fine for violation for the issuer or acquirer is from 25 thousand to a million dollars per month. The dispute between the holder and the merchant involves the exchange of evidence between their banks, and if neither party concedes, the case is reviewed by Visa for $600 (a thousand for an appeal), and the loser pays both the transaction amount and the fee. A separate detail for those who accept cards: any dispute received costs the merchant 15–30 dollars from the acquirer, even if he wins it.
Hence the applied rule: it is cheaper to close a chargeback with a return than to win. The figures in the article are American - Russian acquiring lives according to its own rates and its own regulator, interest cannot be transferred. The device is transferred: who pays whom, who makes the decision and with whom there is a subject of conversation.
Take the latest report from your processing and break down the commission into three parts - yours, the issuer's and the network. After this, it will become clear what you are paying for and what you can influence.