Cards 101

What makes a card a “card”?

Every payment card can be described along three dimensions:

• Acceptance: open loop vs. closed loop. An open-loop card runs on a card network (Visa, Mastercard, American Express, Discover) and works at any merchant that accepts that network. A closed-loop card works only within a single brand or group and doesn’t use a payment network: think a Starbucks or Target store card, sometimes called a private-label card.
• Intended use: consumer vs. commercial. Consumer cards are issued to individuals for personal spending; commercial cards go to people or companies for business spending (small business, corporate, and fleet).
• Funding: debit vs. credit. A debit card pulls from a deposit balance you already hold; a credit card is a loan you repay later.

The main types of card products

Within the open-loop world, products fall into a grid of consumer vs. commercial across credit, debit, and prepaid:

Consumer cards

• Credit: revolving (a credit limit set at underwriting; balances can carry month to month and accrue interest), secured (the credit line is backed by a refundable deposit held as collateral), and charge (typically no preset limit; the statement balance is due in full each month).
• Debit: money is spent directly from an account at a bank, credit union, or neobank.
• Prepaid: payroll (wage disbursement to a stored balance, no bank account required), reloadable (funded repeatedly), and gift (loaded once with a fixed value).

Commercial cards

• Credit & charge: corporate cards (issued to employees with controls and reporting), small-business cards (often underwritten on the owner’s personal guarantee), and commercial charge cards (pay-in-full, often with dynamic spending capacity).
• Debit: business debit (spends from a business checking account), purchasing cards or “P-cards” (policy-based limits and merchant-category controls), and fleet cards (restricted to fuel and vehicle expenses).
• Prepaid: employee per diem, incentive or rewards, and project- or event-specific cards.

The key players

A working card program connects several specialized parties:

• Card networks route authorization, clearing, and settlement messages and set the operating rules. Credit networks (Visa, Mastercard, American Express, Discover) use dual-message processing; PIN-debit networks (Pulse, STAR, NYCE, Accel, Interlink, Maestro, and others) use single-message processing.
• Banks sit on both sides. The issuing bank issues the card and debits the cardholder’s account; the acquiring bank works with the merchant to accept payment and receive funds. Issuers range from national banks to super-regionals, community banks, and the sponsor banks (Celtic, Cross River, Lead, and others) that back many fintech programs.
• Issuer processors are the technology providers that move transaction data between the merchant, the network, and the issuing bank, from first-generation incumbents (Fiserv, FIS, TSYS) to modern, developer-first platforms (Marqeta, Galileo, Highnote, Lithic, Stripe, Zeta).
• Program managers stitch a fintech together with its bank, processor, and network so a brand can launch a card without integrating every piece itself (Imprint, Increase, Highnote, Synctera, Cardless, Alviere, Brim, Rain, and more).
• Merchant acquirers work on the merchant’s side: receiving the transaction, routing it through the network, and ensuring the merchant gets paid (legacy providers like Fiserv, Global Payments, Worldpay, and Elavon; modern ones like Stripe, Adyen, Square, and Braintree).

How a card transaction works

When a cardholder makes a purchase, the transaction runs through two phases:

• Authorization: the merchant’s point-of-sale system sends the request through the acquirer processor and acquiring bank, across the network, to the issuer processor and issuing bank, which approves or declines it. The response returns along the same path in about a second.
• Settlement: later, the merchant batches its completed sales; the network clears them and funds move from the issuing bank to the acquiring bank, net of fees, so the merchant is paid.

Behind the scenes these messages follow ISO 8583, the global standard defining how data like the transaction amount, card number, and merchant information is packaged so banks and systems worldwide speak the same language. How the card is captured matters too: card-present transactions (chip, tap, or swipe) carry lower fraud rates; card-not-present transactions (e-commerce) carry higher fraud risk and lean on authentication signals; and tokenized credentials (digital wallets, card-on-file) swap the real card number for a token, reducing exposure and often improving approval rates.

The economics of a card program

Card programs earn revenue from an array of fees and incentives: interchange, annual and usage fees, rewards, interest, overdraft and foreign-transaction fees, partner offers, and ATM fees. The most important is interchange.

Every time a card is used, the merchant pays a Merchant Discount Rate (MDR), split three ways: the interchange fee (what the issuer earns), the network fee, and the acquirer fee. Interchange and MDR are often used interchangeably, but they aren’t the same: interchange is the issuer’s portion after acquiring and network fees, and the rates are set by the network.

The split varies widely between higher-end credit and regulated debit. As an illustrative example on a $100 purchase:

These figures are illustrative; actual amounts are a percentage of each transaction and vary significantly with card type, merchant category, and the parties involved.

Go deeper

This is the foundation. For the full picture (slides, diagrams, and the provider landscape), download the free Cards 101 deck. To go deeper on specific layers of the stack, see Totavi’s market analyses of credit card program management platforms, debit card program managers, issuer and core processors, and data aggregators.