How MasterCard Works?
Mastercard Incorporated (adapted as MasterCard from 1979 to 2016 and MasterCard since 2016) is an American multinational money related administrations company headquartered in the Mastercard International Global Headquarters in Purchase, New York, United States.
All across the world the main business function of this corporation is acting as an intermediary between the merchant banks as well as banks that issue cards or working with purchaser’s ad their credit union and people who used the brand in order to perform business transactions. After 2006 Mastercard Worldwide became a public company and before this it was collectively owned by thousands of business all of whom issued its cards. Read more here.
From the sixties to late seventies onwards Mastercard was originally called Interbank and Master Change. It was originally created as a major competitor by several different banks in California. Meant to compete with the monopoly that bank of America had.
A Mastercard is authorised at the time of purchase and follows ritualistic predetermined principles. The account information is held inside a Mastercard credit card. This has all the info and that info is given to the vendor or merchant from the cardholder. Mastercard then determines the bank of the cardholder by the request of the bank of the merchant. The Mastercard sophisticated security features then start to check the credit card and it is then sent to the cardholder’s bank for getting approved. The cardholders bank is then responsible for approving the purchase of the item and it gets approved. Mastercard then sends that approval to the bank of the vendor who in turn then provides it to the vendor himself. After the transaction is finally finished a receipt is provided to the cardholder.
Clearing is usually accomplished within a day; the Mastercard network receives the purchase information sent to them from the merchant’s bank. The information is validated by the Mastercard clearing system, which then sends this purchase information over to the cardholder’s bank. Data is then prepared for the cardholder’s statement. Comprehensive reconciliation is provided by the Mastercard clearing system to both the cardholder’s bank and the merchant’s bank.
Settlement of the purchase usually occurs within 2 days. Payment is sent by the cardholder’s bank to the Mastercard counter-party to settlement. Payment is sent over to the merchant’s bank from the Mastercard counter-party to settlement. Merchant is paid by the merchant’s bank for the cardholder’s credit card transaction. The cardholder is billed by the cardholder’s bank. As you can see, this is quite a process, and as a Mastercard client it is good to know everything you can about your card. It can help you understand how a mistake can possibly be made, and how your statement gets processed.
You might have thought at least at one point in your life about the money that is charged to you per transaction from your credit or debit card. They are called interchange fees. Well you might then ask that what does that have to do with Mastercard itself.
Well it is basically the entire reason Mastercard still exists since that is essentially how the company makes its profits. Interestingly while Mastercard has its names on several different and the biggest competitor it has i.e. Visa also has their names on the cards they are technically not directly responsible for the cards made with their name on them. The organization that issues those cards are the ones responsible for it. So Mastercard can earn money by charging the organizations money per transactions and essentially that is how they make their money.
Every time you perform a transaction meaning every time you use your card the transaction fees go to Mastercard. A network that counts the fee exists between merchants and banks and this fee is the profits of Mastercard.
On its own Mastercard is a business that provides financial help and services to individuals and it has partnerships with other organizations and institutions. It gives other institutions the authority to be able to issue cards that have its brand logo on them. The issuer has responsibility to pay the cost of making the cards, producing the terms and conditions and also getting them to the customers. When a partnership of any company with MasterCard is created then it is a contract that states that all transactions of that company must be done over the network of MasterCard. Read more about Mastercard here.
Underwriting of credit cards and bank deposits along with other generic banking services are not exactly what MasterCard provides. While it acts as the network that processes the payments it is not a bank. So, you cannot open an account with Mastercard or do any banking related services with just them.
The institutions that MasterCard is partners with are the ones who determine the types and nature of the benefits that their cards will provide to the person they are issued to. They advertise these benefits via television, social media etc. Customers are attracted through these marketing strategies and it is common for there to be several benefits for just one card for example, reduction in fees, points as rewards, cash returns etc.
The biggest competitor that Mastercard has is Visa. The business model of both companies is extremely similar and similarly it works with third party companies and these companies and organizations in turn issue their cards which have their symbols on them.
Visa itself is not responsible for the cards at all from their use to their production and their delivery. However, they are responsible for providing the users of the cards with security regarding their online purchases etc.
For example, their online card information is secured through different platforms. For visa it is called Verified and MasterCard uses Secure Code. Both are used globally and will act accordingly when used for foreign currency amounts.
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