Week 3.2 Credit Card Network
A simple flash simulation that explains the credit card process
There are 3 parties involved in the commission structure
a) Acquirer : The bank which loan out the credit card terminal to the merchant so that they can accept VISA or Master card
b) Issuer : The bank that issues the credit card.
c) Card Network : VISA, Master, AMEX (American Express)
Normally the merchant is charged 2-4% commission from the sales of their product. Let assume a 3% commission rate equally shared among the stakeholders.
If both acquirer and issuer are from the same bank,
a) Bank will get a 2% commission.
b) More services can be done such as give special offer, discount, free installment, point redemption etc. The routing is simple as it just goes through a single bank. That’s why only certain bank card got special discount at certain merchant.
c) E.g UOB point redemption is only available at BHP petrol station because BHP petrol chain acquirer is UOB bank.
If you do a cash advance at ATM machine using your VISA card, there is an upfront interest of 2% because some commission is charged by the acquirer bank and CARD network as well. When you buy something with free 6 months installment, the 2% commission is actually being paid upfront by the merchant.
For some bank cash advance via phone, I doubt the payment goes through the credit card network. It is just an internal transaction within the same bank. There is no merchant to pay the 2% commission and there is no interest free loan correct! Thus the only way is to charge the customer an upfront interest.
Normally for bullion business, the merchant (seller) has to pay the credit card commission thus some of them are willing to provide discount 1.5%-3% if payment is made via cash or bank wire.
Hope this explains most of the thing. I could be wrong.
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