There are two major approaches to credit card schemes,
- closed loops and
- open loops.
In a closed loop system, the issuer and the acquirer are the same organization, they manage both the cardholder and merchant relationships.
Examples of closed loop systems include Discover (Novus), American Express, Japan Credit Bank (JCB), and Diner’s Club.
In an open loop system, the issuer of a credit card may or may not be the same as the acquiring bank. Because the Visa and Mastercard networks consist of well over 20,000 banks worldwide, there are a tremendous number of possible combinations (4 × 108) of issued cards and acquirer processors for any
given charge transaction. For example, a cardholder holding a Visa card issued by Bank A may shop at a merchant
who has a merchant account at Bank B. As the charge card is swiped on the merchant’s point of sale (POS) terminal,
a charge request is initiated and sent to Bank B (the acquiring bank), which places a charge authorization
request on VisaNet. The Visa network then routes the request to Bank A to determine account status and
sufficiency of credit for approving a new charge to the account.
The response to this authorization request is an authorization response, containing an approve or decline status, along with a code for the merchant to use when the sale is completed (goods are shipped) and the merchant is ready to settle the charges.
SET provides the specifications for request-response message pairs that permits the parties involved to use open networks like the Internet to perform the same work that previously was performed using the private networks that the banks mandated for moving credit card information around. These message pairs offer the same business services that the private-network POS system offers, without the cost of dedicated network links and maintenance.