What is a four-party scheme?
A four-party scheme is a card payment model involving four main participants: the cardholder, the merchant, the issuer, and the acquirer. It is often described as an open loop model because the issuer and acquirer are separate organisations connected through a card scheme.
How does a four-party scheme work?
When a customer pays, the merchant submits the transaction through its acquirer. The transaction is routed via the card scheme to the issuer, which decides whether to approve or decline it. If approved, the transaction later moves through clearing and settlement, with funds transferred through the relevant parties and fees deducted along the way.
Which payment brands use four-party schemes?
Visa and Mastercard are the best known examples. In these systems, many different banks and payment companies participate under a shared set of rules and infrastructure.
Why are four-party schemes important?
They allow broad market participation and global scale. A merchant can accept cards issued by many different banks, and cardholders can use their cards across a wide network of merchants. This interoperability is a major reason why card payments became so widespread.
What fees exist in a four-party scheme?
Fees commonly include interchange, which usually goes to the issuer, scheme or assessment fees, which go to the card network, and acquirer or processor fees, which go to the merchant’s payment partners. Together, these fees make up a large part of the merchant’s total cost of accepting card payments.