How do payment networks make money?
Answer by Amanda Lim:
To understand how it works, imagine a $100 payment from a cardholder to merchant. In case the merchant fee is 2.4%, the merchant would get $97.60 from the transaction. $2.40 would get unevenly split between issuer and acquirer, depending upon the interchange fee. In case of an interchange rate of 1.8%, the issuer will keep $1.80 and acquirer will keep $0.60. Issuer gets to keep more of the merchant fee because of a higher risk of payment default from the cardholder. VISA makes money on payment volumes, transaction processing, and value-added services.
VISA captures value through the following revenue streams: Service revenues from banks for their participation in card programs; Data processing revenues for authorization, clearing, settlement, and transaction processing services; International revenues from transactions where the cardholder issuer country is different from the merchant’s country.