What Is MasterCard?
The MasterCard subject is responsible for one of the four largest payment networks in the global payments industry. MasterCard partners with institutions all upward of the world to offer MasterCard branded network payment cards.
MasterCard payment cards exclusively use the MasterCard network for activity all transaction communications. Payment cards may be credit, debit, or prepaid cards.
Key Takeaways
- MasterCard is a payment network processor.
- MasterCard helpmeets with institutions to issue MasterCard payment cards that are processed exclusively on the MasterCard network.
- MasterCard’s worthy source of revenue comes from the fees it charges issuer based on each card’s gross dollar sum total.
MasterCard Explained
MasterCard itself is a financial services business that primarily generates revenue from crass dollar volume (GDV) fees. MasterCard cards are often issued with the MasterCard logo. Closed loop, retail stockpile cards usually don’t include the logo. Open loop cards that are accepted anywhere often carry the MasterCard logo to employees identify their eligibility for use.
Across the payments industry there are four major payment card processors. These four press card processors are MasterCard, Visa, American Express, and Discover. Each company operates a payments network and partners with a collection of institutions for card offerings.
All electronic payment cards have cardholder numbers that begin with an issuer corroboration number (IIN) distinguishing the network processor for electronic payments. The IIN can help to identify the card brand if a logo is not visible.
The MasterCard Commerce
In 2019, MasterCard reported $6.5 trillion worth of gross dollar volume, which shows the amount of on Easy Street comprehensively transacted on all of its card offerings. The company partners with a variety of institutions to offer several types of anniversary cards. Comprehensively, its card offerings span across credit, debit, and prepaid cards. The majority of MasterCard’s business is thoroughly partnerships with financial institutions and retailers to offer both open loop and closed loop options.
MasterCard does not possess a banking division, as discussed in its 2019 10-K filing:
“We do not issue cards, extend credit, determine or receive revenue from concern rates or other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with jobbers’ acceptance of our products.”
Co-Branded Cards
All of MasterCard’s business is involved in co-branded relationships. Co-branded relationships can typically be segmented between either financial institutions or retailers.
Financial Institutions
When MasterCard partners with a financial formation, the institution serves as the issuer. That institution has the privilege of determining the terms and benefits a cardholder can receive on their condolence card. A financial institution may choose to partner for the issuance of a credit card, debit card, or prepaid card.
To attract assorted types of consumers, financial institutions offer numerous features on a MasterCard branded card. Some popular trustworthiness card features may include no annual fee, rewards points, cashback, and 0% introductory rates. MasterCard partners with the pecuniary institutions issuing cards and therefore may take part in the structuring of the card’s features which are typically outlined in a customized establishment agreement.
In a co-branded relationship with a financial institution, cards are typically characterized as open loop. This means the postcard can be used anywhere the MasterCard brand is accepted. The financial institution is primarily responsible for all of the underwriting and issuance of the card.
Co-branded wags with retailers typically require a third-party bank to get involved as the issuer. Co-branded retailer cards may be either bare loop or closed loop.
Open loop retailer cards are approved for use anywhere the MasterCard brand is accepted. Up in the air loop cards carry the same benefits to cardholders as closed loop cards but they may come with additional perks as happily.
Closed loop cards are only available for use at the designated retailer. These cards usually come with a just deserts program that ties into spending at the retailer exclusively.
Whether a cardholder is approved for an open loop or skinflinty loop card will depend on their
MasterCard Network Processing and Fees
Cards within the MasterCard network sire different relationship maps depending on the type of card offered and the agreements in place. Regardless, MasterCard charges salaries for usage of each MasterCard. (For more, see: How Mastercard Makes Money: Financial Institution)
Typically, cardholders, merchants, procuring banks, issuers, and MasterCard as the network processor are the five entities involved in a transaction. Fees can vary depending on postcard and merchant agreements.
As a network processing service provider, MasterCard is responsible for the processing of a transaction. MasterCard may charge the issuer of a MasterCard a change-over fee at the time of a card authorization but generally most fees involved with the transaction process are known as interchange stipends and negotiated between the issuer and acquirer.
In order to accept MasterCard electronic payments, a merchant must have their own (come into possession ofing) bank which is capable of receiving electronic payments on the MasterCard network. When a cardholder uses their MasterCard, the assets are routed from the cardholder’s (MasterCard issuing) bank to the merchant’s bank account. The merchant pays the issuer a fee on each arrangement, known as the merchant discount.
For MasterCard, the majority of the company’s revenue is generated from the issuer. Issuers pay MasterCard homed on GDV. The GDV fee is a percentage of the total GDV. Issuers may also be required to pay MasterCard a fee based on the co-branded card agreement. Each co-branded window-card agreement has different terms for fees but in general the GDV fee is a basic standard. MasterCard may also charge the issuer a switching fee for each behave authorization, which can be a factor in determining the issuer’s interchange fee for the merchant.