How make credit card
I am focusing on the revenue side in this answer.
The parties involved in a Credit Card Transaction are:
1. Card Holder and Merchant. - Source of Money for Below Entities
2. Issuing Bank - The entity which issues the Credit Card to Customer. It extends a line of credit to the consumer. Liability for non-payment is then shared by the issuing bank and the acquiring bank, according to rules established by the card association brand. Visa and MasterCard are not issuing Banks.
3. Acquiring Bank - It is responsible for making payments to the merchant. They deal with merchants - requests them to accept their card.
4. Network (Visa, MasterCard, American Express): The link between acquiring banks and issuing banks. These banks have relationships with a network, rather than with each other, for fulfilling card purchases. This allows a card issued by a community bank in Peru to be used at a shop in South Africa, for instance, without requiring the banks to have a direct relationship with each other. The two largest networks in the world are Visa and MasterCard.
American Express is acquirer, issuer as well as has its own network. Banks can use each others network if an agreement is reached.
Example (Indian Companies)
Mr.Kumar wants to buy a Sony T.V with SBI credit card (a MasterCard affiliated). The shopkeeper at Sony Showroom swipes the SBI credit card on a machine provided by bank say ICICI bank. In the example Mr. Kumar is the card holder, SBI bank is the card issuer, merchant is shop or Sony Showroom and ICICI Bank is the acquirer and MasterCard is the card association (Network Company).
The acquirer Bank pays the Merchant transaction amount after deducting Merchant Discount Fees. The Issuer Bank pays the Acquirer Bank after Deducting Interchange Fees. The Issuer Bank collects the transaction amount from Card Holder. Both Acquirer and Issuer Bank pays Network Company a fee.
In Short, merchant discount is distributed between Acquiring Bank (Acquirer fees), Issuing Bank (Interchange Fees) and Network (Network Fee).
So, the Issuing Bank, Acquiring Bank and Network have different sources of revenue.
Payment Networks (Network Fees):
1. Service revenues consist mainly of revenues earned for providing financial institution clients with support services for the delivery of payment products and solutions.
2. Data processing revenues are earned for authorization, clearing, settlement, network access and other maintenance and support services that facilitate transaction and information processing among our financial institution clients globally.
3. International transaction revenues are earned for cross-border transaction processing and currency conversion activities. Cross-border transactions arise when the country of origin of the issuer is different from that of the merchant.International fees is generally explicitly charged to customer in addition to transaction amount. So, acquiring and issuing bank do not have to share this burden.For MasterCard (in 2011), the currency conversion fee was 0.2% of the transaction amount and the cross border fee was 0.8% of the transactions amount.
4. Other revenues consist mainly of license fees for use of the brand, optional service or product enhancements, such as extended account holder protection and concierge services.
1. Acquirer Fees
Major Components (More than 90%):
1. Interchange Fees
2. Late Fees
3. Interest Rate Charge on Revolving Balance (Balance which is not paid before due date)Source: www.quora.com