1 1 Slide HOW CREDIT CARDS WORK Laxmi G Vulpala

2 2 Slide How Credit Cards Work n What the numbers on the card mean? n How the transactions work? n Main entities involved n How each entity makes money?

3 3 Slide What the numbers on the card mean? Here are what some of the numbers stand for: n The first digit in your credit-card number signifies The type of the card (Amex- 3, Visa - 4, MasterCard 5, Discover 6) n American Express - Digits three and four are type and currency, digits five through 11 are the account number, digits 12 through 14 are the card number within the account and digit 15 is a check digit. n Visa - Digits two through six are the bank number, digits seven through 12 or seven through 15 are the account number and digit 13 or 16 is a check digit. n MasterCard - Digits two and three, two through four, two through five or two through six are the bank number (depending on whether digit two is a 1, 2, 3 or other). The digits after the bank number up through digit 15 are the account number, and digit 16 is a check digit.

4 4 Slide What the numbers on the card mean? SystemNumberBankNumberAccountNumberCheckDigit

5 5 Slide What the magnetic-stripe contains n Account Number, Account Holder Name, Pin, Country Code and Currency etc.

6 6 Slide How the transactions work PaymentProcessor

7 7 Slide n Issuing Bank: A bank that issues the credit to the customer. n Acquirer Bank : A bank that has a business relationship with a merchant and receives all credit card transactions from that merchant. n Visa/MasterCard: Co-operative Ventures owned by the issuing banks, which own networks that facilitate the exchange of money between banks Main entities involved.

8 8 Slide How each entity makes money? n n The Visa and MasterCard organizations are funded by membership dues and fees paid by the banks that make up the organizations. n The banks themselves have two main sources of revenue from credit-card transactions. 1) Interchange Fee 2) Interest on purchases and cash transactions/Membership fee charged to the customer

9 9 Slide How each entity makes money? n The majority of this fee, goes to the issuing bank, but parts of it go to the processing network, the card brand (American Express, Visa, MasterCard, etc.), and the merchant's acquirer. n Interchange Fee: Interchange fees are charged by the merchant's /acquirer bank to a card-accepting merchant as component of the so-called merchant discount fee. The merchant pays a merchant discount fee that is typically 2 to 3 percent. The majority of this fee, goes to the issuing bank, but parts of it go to the processing network, the card brand (American Express, Visa, MasterCard, etc.), and the merchant's acquirer.

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