Imagine you are running a small online business, but there’s no system to move payments from the buyers into your bank account. You would be overwhelmed and give up, right? Payment networks are made to make money exchange easy for businesses and customers. A payment network connects buyers, sellers, and banks. It makes payments fast, secure, and reliable.
In this article, we will learn about payment network examples and how they work. We will also explore their different types and much more.
What are Payment Networks?
Payment networks are systems that help move money from a buyer to a business. They act like a middleman when you pay with a card, phone, or online.
When we pay by card or online, money moves through a special system from our bank to the shop’s account. That system ensures safe and verified transactions.
Global Payment Networks
Global payment networks are payment networks that work anywhere in the world. Some of the famous global networks include. They have global acceptance, which means they can easily handle currency conversion. Their key feature is fraud detection and encryption.
This makes payments safe and trustworthy worldwide.
Some of the largest payment networks are:
- Visa
- Mastercard
- American
- Express
- Discover
- UnionPay
These are some of the intelligent payment networks that ensure cross-border settlements.
How Do Payment Networks Work?
The transfer of money from one bank account to another takes place within he flow of 5 main steps:
Step 1: Transaction Begins
When you pay by card, the machine collects your card details and the amount. These details are then sent to the aquirer, which is the receiver’s bank.
Step 2: Payment Network Routing
The acquirer then sends a request to the payment network, such as Visa or Mastercard, as it cannot talk directly to your bank. The payment network then forwards the request to your bank safely.
Step 3: Bank Authorisation
On receiving the request, your bank quickly checks the card status (active or blocked) and available balance. It also verifies whether the transaction is secure. Based on that, it either approves or declines the request. This response goes back to the merchant’s machine.
Step 4: Clearing
Even though the transaction is approved, no money has been transferred yet. These transactions are recorded and sent through the payment network, so both banks agree on the payment details before money actually moves.
Step 5: Settlement
This is the final step where the actual transfer of money takes place. The payment network calculates the amount, and your bank sends it to the merchant. The receiver’s bank receives the money within 1-3 working days.
Types of Payment Networks
There are several types of payment methods, categorised by who controls them, how they operate, and where they are used. Below is the list of payment networks designed to serve different needs:
1. Credit Card Networks
Credit card payment networks facilitate transactions using credit cards. A credit card is one of the top payment networks in the world. These credit cards are further divided into open-loop and closed-loop networks:
- Open-loop networks (e.g., Visa, Mastercard) allow third-party banks to issue cards. Many banks and merchants are connected.
- Closed-loop networks (e.g., American Express, Discover) issue cards directly to customers. They manage the entire process in-house.
2. Electronic Funds Transfer Networks
EFT is a digital system that transfers money directly between bank accounts. The transfer can happen instantly or within a few business days. Based on their features, EFT networks have different types:
- ACH(Automated Clearing House)
ACH is designed for bulk transactions all at once. It bundles thousands of transfers together and then processes them in batches. It takes 1-2 business days to complete the funds movement from one bank to another.
- Wire Transfers
Wire transfers are individual and faster, directed from one bank to another. It is mainly used for large, urgent, and international transfers.
- CHIPS(Clearing House Interbank Payments System)
CHIPS is a U.S private high-value payment system. It is mainly used for time-critical and huge payments by financial institutions.
3. Peer-to-Peer (P2P) Payment Networks
P2P is a digital system that allows people to send money to each other without needing the receiver’s bank details. They can do this by using their bank account, card, or stored balance.
4. ATM Networks
An ATM (Automated Teller Machine) network connects cardholders, banks, and ATMs. It lets customers deposit, withdraw, and check balances anytime, anywhere. The ATM networks work 24/7 and have a global reach.
5. Specialised Networks
There are specialised payment networks that serve specific purposes and are tailored for particular industries. Some of the specialised payment networks are:
- Health care payment networks
- Government payment networks
- B2B(Business to Business) networks
Mobile Payment Systems
Mobile payment systems enable you to make payments using your mobile, tablet, or smartwatch, eliminating the need for physical cards or cash. Mobile payment methods are widely used because of their convenience and speed. Similarly, digital wallets and apps like Google Pay are convenient to use, acting as a virtual version of your wallet.
Mobile payments work in different ways depending on the technologies you are using:
- NFC (Near Field Communication)
- QR Code Payments
- In-App / Online Payments
- Peer-to-Peer Transfer
Benefits of Using Payment Networks
Payment networks have made the exchange of money much easier and reliable. The transactions are now processed faster and more safely. For businesses, payment networks provide scalability and easy record-keeping.
Some of the most significant benefits of payment networks are:
- Security
There are no chances of losing money between transactions or fraud because of strong encryption and tokenisation. Also, these payment networks have zero liability policies, which prevent you from any loss of money in case of any fraudulent activity.
- Fast Transaction
The transactions you made with the payment networks are speedy, even between different banks and countries; it only took a few seconds to complete, unlike traditional transfers.
- Global Acceptance
Some of the payment networks have global acceptance, allowing users to make transactions anywhere in the world without the hassle of currency conversion.
- Convenience
The payment networks are very convenient to use as they allow users to make a payment anytime, anywhere in the world, and offer multiple payment options.
- Record Keeping
The record of each transaction is saved, making it easier for both customers and banks to track their transactions and monitor where and when money is spent.
How to Choose the Right Payment Method
Suppose you frequently make payments and are seeking a reliable payment network that meets your needs and ensures secure transactions. In that case, there are several factors you should consider before making any decision on which payment method to choose:
- Speed
If you have to deal with urgent payments where time matters, then you should go for some faster options like Wire transfers instead of using ACH, which completes transactions in a couple of days.
- Security
If you are dealing with large payments where you cannot afford any risk of fraud or loss of money, then you should go for a safer option where transactions are fully encrypted.
- Global Acceptance
If you deal with international payments, then you have to go with globally accepted payment networks that can be used worldwide. This will allow automatic currency conversion and worldwide availability.
- Fees
Different networks charge different fees per transaction; if you have to make payments more often, then choose a network according to your affordability.
- Coverage
If you are dealing with business payments, ensure the network you choose is available where you or your customers shop.
Final Remarks:
In short, payment networks have made exchanging money easier, whether locally or internationally, anytime and anywhere. Even with the help of global payment networks, you can send or receive money in foreign currency as they can easily handle currency conversion. There are many different types of payment networks available throughout the globe, depending on the technology used and their working principle. You can choose the best network according to your requirements based on factors like fees and speed.
FAQs:
How do payment networks use AI to detect fraud?
Payment networks use AI to keep transactions safe by spotting and stopping unusual activity in real time.
- Spot unusual spending patterns.
- Track new devices or locations.
- Compare with global fraud trends.
- Score transaction risk in real time
- Block suspicious payments instantly
How do these entities interact with payment networks?
Entities like banks, card issuers, merchants, and processors interact with payment networks by sharing transaction data. The network acts as a bridge; it routes the payment request from the merchant to the issuing bank for approval, then back to the merchant, and finally handles settlement between banks.
What is the best payment network?
There isn’t a single best payment network since each has its strengths. Visa and Mastercard are best for international use. American Express offers substantial rewards and services, while Discover is common in the U.S. For online and quick digital transactions, PayPal and similar networks work best.
What are some examples of payment networks?
Popular payment networks include Visa, Mastercard, American Express, and Discover. Other options like PayPal, RuPay (India), and UnionPay (China) also serve millions of users worldwide.
Which is the most widely used payment network worldwide?
Visa and Mastercard lead globally, accepted in most countries and by millions of merchants, making them the most reliable networks for international transactions.
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