Glossary

Interchange Network

An interchange network is an essential electronic system used by major card networks such as American Express®, Discover®, MasterCard®, and Visa® to facilitate the exchange of transaction data and financial information among card issuers and acquirers. These networks are crucial for verifying transactions, authorizing purchases, and ensuring the secure and efficient processing of payments. When a transaction occurs, the interchange network relays data from the merchant's point-of-sale (POS) system to the card issuer to confirm the availability of funds and the validity of the card. Upon approval, this network also handles the settlement and clearing processes, ensuring that funds are appropriately transferred between the acquirer and issuer banks.

Interchange networks are supported by interchange fees, which are paid between the merchant's bank and the cardholder's bank. These fees vary depending on the card network and are influenced by factors such as the type of card, the transaction environment, and the merchant's industry. They compensate for transaction-related costs, including the risk of fraud and the provision of credit. The robust security measures and global reach of these networks not only protect sensitive information but also support international commerce, allowing cardholders to use their cards worldwide. This interconnected system is fundamental to maintaining the reliability and trust necessary for the smooth operation of global financial transactions.

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