Card Scheme: Fintech Explained by SimpliFi

Dubai, UAE - July 08, 2022

In any given payment card transaction there are multiple entities involved in the processing of those transactions- one of the fundamental entities found in the process is the Card Scheme.

What is a Card Scheme?

A card scheme is a payment network that processes payments made on prepaid, credit, and debit cards. Its primary role is to connect payors with payees by acting as a trusted party and managing payment transactions, including authorization, clearing, and settlement. Transactions are managed according to a set of procedures, rules, and arrangements that allow cardholders to buy products and services from retailers and other service providers.

Card schemes serve as a fundamental part of payment processes, making online and offline purchases possible without the need for cash or cheques.

As consumers, we use these schemes day in and day out in spite of the fact that there is no direct relationship between the card scheme and us – the consumer. Banks and other financial institutions are members of card schemes like Visa or Mastercard which allows them to issue payment cards.

How Does a Card Scheme Work?

Card schemes use a set of unique rules and procedures to transfer transaction information from the acquiring bank to the issuing bank.

Once a payment card is tapped, swiped, or inserted in a POS terminal, or through an online payment system, a certain pathway of communication opens up. This pathway is between the card scheme, the issuing bank, and the acquiring bank – representing how cardholder data is stored, processed, and transmitted in order for a transaction to go through.

As consumers tap their cards to pay, card schemes send authorization requests to cardholder’s bank – validating card details provided and ensuring sufficient funds are available in cardholder’s account. Once authorized, card schemes send information back to the acquiring bank. Transactions are settled typically overnight and funds are released and placed into the merchant’s account.

In short, card schemes are an essential component of successful transactions, connecting merchants and financial institutions to authorize transactions and facilitate the transfer of funds.

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