How Do MasterCard and Visa Work?

Working of MasterCard and Visa

             Both Visa and MasterCard work in a very similar way for credit as well as debit cards.

There are four parties to each transaction to Master card that is a cardholder, an issuer, a merchant and an acquirer.

A cardholder or an account holder buys goods or services from a merchant. After the transaction is approved by the issuer then the issuer pays the acquirer a sum equal to the value of the transaction deducting an interchange fee and then posts the transaction to the cardholder’s account. The acquirer pays the amount for buying of goods or services, net of a discount to the merchant. The merchant discount rate takes into consideration the amount of the interchange fee. Master card connects all parties together no matter where a transaction happens either at a physical location or at an ATM or on the internet.

The working of Mastercard is briefed up in the steps below:

1) Authorization

A MasterCard is authorized or approved at the time of purchase and consists of the following steps:

  1. The MasterCard contains the information of the account which is provided to the merchant from the cardholder.
  2. At the request of the merchant’s Bank, the cardholder’s bank is determined by MasterCard.
  3. The purchase is accepted by the cardholder’s bank.
  4. This approval or authorization is sent by MasterCard to the merchant’s Bank and then, the approval is sent to the merchant from the merchant’s bank.
  5. Cardholder obtains a receipt when he completes the credit card transaction.

2) Clearing

Clearing usually completes within a day and follows these steps.

  1. The information about the purchase is sent to them from the merchant’s bank is received through the Mastercard network.
  2. The MasterCard clearing system finds the information valid then sends this purchase information over to the cardholder’s bank.
  3. Then the data is prepared for the cardholder’s statement.

3) Settlement

The settlement transaction usually takes 2 days.

  1. The cardholder’s bank sent the payment to the MasterCard counter-party to the settlement.
  2. Then the MasterCard counter-party sent payment over to the merchant’s bank to settlement.
  3. The Merchant is paid by the merchant’s bank for the cardholder’s transaction.

This is somewhat a process and as a MasterCard client it is important to know every information about master card starting from the customers pays with master card, payment authenticated, transaction submitted, authorization requested, and authorization response till the merchant payment.

Visa includes products, services, technology and marketing programs that ease the electronic exchange of information and funds among financial institutions, merchants’ businesses, non-profits and governments. Visas describe the rules that facilitate financial transactions to be completed safely and consistently.

Visa Credit Card

There are few entities that take part in transaction Visa’s system which are similar as master card i.e. Merchant, acquirer, cardholder, issuer, visa inc., and  VisaNet. The role of every entity in the transaction process of visa is:

  • Cardholder presents the merchant with a card for payment. The data on the card are read directly by a point of sale (POS) device, then the key-entered into it by the merchant on the merchant’s website or over the phone.
  • The merchant sent the transaction information to the merchant’s bank (acquirer). After that the acquirer sends a transaction approval request to Visa.
  • Visa sends the transaction request on to the issuer.
  • The issuer then sends back to Visa a response of either approving or rejecting the authorized transaction.
  • Authorization response is sent on to the acquirer by visa.
  • Further, the acquirer forwards the authorization response to the merchant.

 

Visa transaction involves three stages similar as of the master card:

  1. a) Authorization is the step of accepting or rejecting a transaction by the issuer in the process stated above.
  2. b) Clearing step involves of transmitting last transaction data from an acquirers to issuers for the settlement. At this stage the fees and charges that apply to the transaction are calculated.
  3. c) Settlement step involves the actual exchange of funds between both acquirers and the issuers for all approved transactions that are cleared.

Visa and MasterCard credit cards are accepted worldwide and these both are the payment systems.

If you are thinking of travelling, must check that which type of card is more suitable in the country where you will be visiting but still both the cards are widely accepted in over two hundred countries. Nevertheless, neither Visa nor MasterCard issue any credit cards themselves. They are just simply methods of payment. They just depend on banks in various countries to issue credit cards that use these payment methods. So, the rewards, annual fees, interest rates and other charges are issued by your bank and when you will pay your bill then you will pay directly to the bank or institution where your card is issued and not Visa or MasterCard.

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