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Card scheme explained – who is involved and how does it work?

As a merchant who accepts card payments through your card payment device, it would be wise to become acquainted with the term “card scheme”.

Undoubtedly, this is an important part of your payments acceptance journey, and knowing all the right players in the industry and their roles and functions can help you navigate the seas of payments acceptance more easily.

What is a card scheme?

Think of a card scheme as a payment club that has different members. Each member plays a specific role in the entire payment process by following specific rules and regulations.

Two of the world’s major card schemes are Visa and Mastercard and although they do not directly issue debit or credit cards, they do work with banks or financial institutions to help a merchant accept a payment.  

As mentioned above, there are several players involved, and these are:

Who is involved?

Card scheme

The card scheme does not issue debit or credit cards per se. Rather, they help enforce the rules and regulations in the process and they get a cut out of every transaction made. This “cut” can be either on a per transaction basis or on a per-volume basis.

Issuing bank

This is your typical bank or financial institution which issues the cardholder’s debit cards or credit cards for their future use. The card is typically “sponsored” by one of the major card schemes.


The cardholder is the customer who hands over their card issued by the issuing bank in order to make a payment.

Acquiring bank

The acquiring bank is the merchant’s bank where funds received from their customer are settled into their merchant account.

How does a card scheme work?

So, how does this work in practice?

  • It all starts out with the customer making the decision to buy a product or service. They present their payment card to the merchant.
  • Once the card is tapped, swiped, or inserted in the POS terminal, or through an online payment system, a certain pathway of communication opens up. This pathway is between the card scheme, the issuing bank, and the acquiring bank.
  • In short, once there is a check that there are sufficient funds in a cardholder’s card and that all data is correct, the money is released to the acquiring bank and is placed into the merchant’s merchant account.

Difference between a card scheme and a payment scheme

If you have a payment card, use a mobile application to do your finances or you use electronic wallet solutions – you’ll know that all these are payment instruments.

While this may be clear, what may not be is the fact that a set of rules known as a payment scheme governs these payment instruments. You might think, well I know what a card scheme is, so what’s the difference between a payment scheme and a card scheme.

To the untrained eye, they may appear to be the same, but they’re actually different concepts dealing with two different things. So, if you’d like to find out what the payment scheme meaning is, keep reading below!

What is a payment scheme?

According to sources, this term refers to a set of specific rules which are used to govern how payment transactions are made with payment instruments. 

If you’re thinking “rules”? What rules? We break it down for you.

These rules relate to:

  • Issuing of payment instruments by the payment service
  • Providers providing the acquiring service by the payment service providers, and
  • The actual processing of payment transactions. 

Essentially, the payment organisation develops these rules and determines the payment scheme’s functioning. 

According to Access to Payment Systems, some of the most common features of a UK payment scheme include that it does the following:

  • “Offers a service to move money between parties
  • Comprises a governance structure, which has independent directors who are mandated to represent the views of all service users, together with other directors who are appointed from the members of the scheme
  • Custodians of the payment scheme rules and technical standards for operation
  • Responsible for the operation of the underlying payment systems
  • Complies with regulatory aspects governing payment schemes and systems
  • Has access criteria and an application process for joining”

The scheme rules and procedures

Each organisation that is part of the scheme must adhere to the payment rules set out. Some of the technical standards that the payment scheme rules cover include: 

  • Currency
  • Time frames for Payment Service Providers when executing a payment transaction, and
  • Standard data formats which are used to exchange messages between banks 

According to the European Payments Council (EPC), European payment service providers process and facilitate about 43 billion transactions every year. In addition, the payment scheme can also be referred to as the “building block” for most euro credit and direct debit transactions. 

It differs from a payment system, which according to the EPC, “is a technical infrastructure that processes transactions in line with the rules defined in a payment scheme.”


Essentially, the card scheme’s process involves four sets of parties, typically, although sometimes, there are fewer parties because one may actually serve both the function of an acquiring bank, an issuing bank, and a card scheme at the same time. This is the case with American Express, for example.

Either way, the process is almost identical, although the method of communication in the latter case will be much swifter as the card scheme really only communicates with itself to ensure there are sufficient funds to pay a merchant.

Finally, it’s important to note that there are fees involved for merchants when it comes to processing credit or debit card payments. These fees will depend on the different players in the process and will either be on a per-transaction basis where a certain fixed percentage is charged, or on a per-volume basis where a certain amount is paid after a certain volume of transactions has been reached.

Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.

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