Or do they actually pay for your transactions using money they've borrowed from the issuing bank ? ie, is the bank lending the credit card holder the money or is the bank lending money to the credit card company which then lends to you at a higher interest rate ?

I'm trying to do some research on the relationship between the bank and the credit card company on the card.

Does the bank or the credit card company take on the risk/loss if the card user cannot pay the money back ?


3 Answers 3


Here is how the Visa network works:

A Visa transaction is a carefully orchestrated process. When a Visa account holder uses a Visa card to buy a pair of shoes, it’s actually the acquirer — the merchant’s bank — that reimburses the merchant for the shoes. Then, the issuer — the account holder’s bank — reimburses the acquirer, usually within 24 to 48 hours. Lastly, the issuer collects from the account holder by withdrawing funds from the account holder’s bank account if a debit account is used, or through billing if a credit account is used.

I read this to mean the Merchant's Bank (the Acquirer Bank) gives the merchant the money within 2 days via the Card Issuer's Bank. The issuing bank is the one that provides the "credit" feature since that bank won't get reimbursed until the shopper's bill is paid (or perhaps even longer if the shopper carries a balance).

You'll notice the Credit Card company (Visa/MC/etc) is only involved in the process as a way of passing messages. Of course they take a fee for this service so seller ultimately get's less than the buyer bought the shoes for.


Typically there are several parties involved:

  • the cardholder
  • the card issuer, typically a bank
  • the network, e.g. Visa
  • the merchant's acquirer, typically a bank
  • the merchant

(Sometimes one company plays multiple roles; for example AmEx is a network and an issuer.)

When a merchant charges a card and the issuer approves it, money is transferred from the issuer to the acquirer to the merchant. This settlement process takes some time, but generally is completed within a day.

Of course, most cardholders pay on a monthly basis. The issuer must use their own funds in the mean time. If the cardholder defaults, the issuer takes the loss.


In most cases, the brand on the card, eg Visa or MasterCard, is a middleman. The company processes the transaction, transferring $xx from the bank to the seller, and telling the bank to debit the buyer's account. The bank is at risk, not the company transacting the purchase. What's interesting is that American Express started as both. My first Amex card, issued in 1979 (long expired, but in my box of memorabilia) had no bank. American Express offered a card that offered no extended credit, it was pay in full each month. Since then, Amex started offering extended credit, i.e. with annual interest, and minimum payments, and more recently, offering transaction processing for banks which take on the credit risk, essentially becoming very similar to MasterCard and Visa.

  • My first Gold Amex card (issued in 1976 and also long expired) also had no bank but Amex had contracted with most "national" banks to allow a card-holder to get cash from the bank and have the bank put it as a charge on the Amex card (card statement payable upon receipt, no extended credit, no grace period), or to cash a personal check drawn on the card-holder's checking account back home. Amex was guaranteeing that the check would be honored. This of course was long before ATMs, in fact when the Internet was the ARPANet run by the US Defense Department's Advanced Research Projects Agency. Apr 20, 2014 at 14:32
  • Hmm, that makes you even older than me. And one of the few here that remember Usenet. Apr 20, 2014 at 15:15
  • My CURRENT Amex card has no bank associated with it.. Its just an Amex corporate card where you are supposed to pay within 20 days of the statement being generated
    – user87166
    Oct 17, 2014 at 16:15
  • @user87166 - I didn't suggest otherwise. Please re-read my post. Oct 17, 2014 at 16:27
  • Specifically, Amex issued charge cards, not credit cards. en.wikipedia.org/wiki/Charge_card
    – RonJohn
    Aug 14, 2018 at 15:52

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