Most small business owners and their teams closely monitor the funds moving in and out of their business bank accounts—whether they are customer or vendor payments, employee payroll, or electric bill payments. But how do your business payments move from one place to another, and how are payment networks involved?

Businesses should spend time learning about payment networks. There are many ways for businesses to accept and issue payments, and your choice of payment methods can significantly impact your bottom line. A solid understanding of payment networks can help you decide how your business will send and receive money.

With that in mind, here’s what you need to know about payment networks.

What’s in this article?

• What are payment networks?
  
• What are the major payment networks?
  
  • Credit card networks
    
  • Electronic-funds-transfer networks
    
  • Peer-to-peer payment networks
    
  • ATM networks
    
• How do payment networks work?
  

What are payment networks?

Payment networks are organizations, such as card associations and electronic-funds-transfer (EFT) networks, that facilitate financial transactions. The term “payment network” refers to any interconnected structure of financial entities—and their respective authorized agents and affiliates—within which funds can be transferred between individuals, businesses, or institutions.

Every payment network operates differently, but they share some basic similarities. Most payment networks are made up of many participating entities, such as credit card companies, banks, credit unions, and other financial institutions. These groups of entities are connected by an electronic network through which funds are transferred under the guidance of a shared set of regulations and guidelines. The network itself is maintained and operated by a governing organization, which is often an association made up of participating members.

Every network is designed to solve the same problem: how to move funds between two points as safely, quickly, and cheaply as possible. As we describe the different types of payment networks, you’ll notice that some prioritize one of those three features over the others. Choosing the best payment network for your business requires deciding which of those features is most important to you.

What are the major payment networks?

Payment networks are broken down into four categories:

• Credit card networks
  
• Electronic-funds-transfer systems (e.g., ACH and wire transfers)
  
• Peer-to-peer (P2P) payment networks
  
• Automated teller machines (ATMs)
  

Credit card networks

Types of card networks

All credit card networks fall into one of two categories:

• Open network
  Open credit card networks allow third parties to issue credit cards to customers.

• Closed network
  Closed credit card networks don’t allow third-party financial institutions to issue their credit cards on their behalf. Instead, the credit card companies issue all credit cards directly to customers.

For more information about card networks, including which major networks are open and which are closed, read our article on how credit card networks work.

Major US card networks

The US has four major credit card networks: Visa, Mastercard, Discover, and American Express. The Nilson Report quantified the market share of each network, in 2022:

• Visa: 61%
  
• Mastercard: 26%
  
• American Express: 11%
  
• Discover: 2%
  

Visa and Mastercard are open networks, and American Express and Discover are closed networks.

Major international card networks

Outside the US, other credit card networks dominate customer payments. The two biggest networks are:

• Interac
  Interac is the primary issuer of debit cards in Canada, where major networks like Visa and Mastercard don’t issue many cards. Interac includes more than 59,000 ATMs and is accepted by nearly half a million businesses.

• Japan Credit Bureau (JCB)
  Based in Japan, JCB not only dominates the Japanese card market, but it is also accepted in more than 20 countries worldwide.

Electronic-funds-transfer networks

Electronic funds transfers (EFTs) are transactions that move funds electronically between different financial institutions, bank accounts, or individuals. EFTs are frequently referred to as “electronic bank transfers,” “e-checks,” or “electronic payments.” “EFT” is an umbrella term that captures a wide range of different transfer types and the networks that facilitate them. Here are a few of the most prominent EFT networks:

Domestic

• Automated Clearing House (ACH)
  The ACH is a centralized US financial network for banks and credit unions to send and receive electronic payments and money transfers. It’s used widely by businesses and individuals. In 2020, the ACH network processed 26.8 billion payments, an 11% increase over the previous year. If you’ve ever received a paycheck via direct deposit, that payment was sent using the ACH network.

• Wire transfers
  Wire transfers are another common way to send funds electronically from US financial institutions. This network is called the Fedwire Funds Service, formerly known as the Federal Reserve Wire Network. Managed by the Federal Reserve, the Fedwire Funds Service is a real-time settlement system of central bank money used to electronically facilitate transactions between financial institutions. Businesses, customers, banks, and government agencies use this network to safely and quickly transfer funds. In February 2023 alone, the Fedwire Funds service originated over 14 million wire transfers.

• CHIPS
  The Clearing House Interbank Payments System (CHIPS) is the clearing system that handles large bank transfers in the US. CHIPS is the largest private USD clearing system in the world—it settles $1.8 trillion in domestic and international payments every day. CHIPS and the Fedwire Funds Service together comprise the majority of US domestic transfers of funds and international transactions using US dollars. The average CHIPS transfer is over $3,000,000.

International

While wire transfers can be used to send funds between the US and other countries, there are many other payment networks that operate in different regions of the world. These include:

• CHAPS
  The Clearing House Automated Payment System (CHAPS) is used in the UK for processing same-day pound-sterling payments.

• Bacs
  Bacs is a membership organization made up of 16 top UK banks that facilitates transfers between those banks. In 2019, Bacs saw 4.5 billion direct-debit payments and processed nearly £4 trillion in direct-credit payments.

• SEPA
  The single euro payments area (SEPA) is an integrated payments system that allows bank account holders in the European Union (EU), the European Economic Area (EEA), and the UK to transfer funds between different banks in member countries.

• SPFS
  Russia developed the System for Transfer of Financial Messages (SPFS) in 2014, in response to economic sanctions that banned its participation in SWIFT. In September 2022, Russia’s national bank—which operates SPFS—reported that the system had 440 member entities, including more than 100 located outside Russia.

• CIPS
  In China, the Cross-Border Interbank Payment System (CIPS), which is backed by the People’s Bank of China (PBOC), offers settlement and clearing services for international renminbi (RMB) transactions. Although CIPS currently relies on the SWIFT system, the development of CIPS is part of a broader effort from China to internationalize the use of RMB as a payment method.

Peer-to-peer payment networks

Peer-to-peer (P2P) payment networks allow individuals to send funds without using financial institutions and the networks that facilitate those transfers. Instead, P2P payment networks let users select different payment methods (credit and debit cards, bank accounts, etc.) through which to send and receive funds, and then easily transfer those funds from the payment platform to their personal bank accounts.

Peer-to-peer payment networks are relatively new. Today, customers have many options for these types of transfers, and P2P payment networks are an easy way for customers to pay businesses, businesses to pay other businesses, and family and friends to exchange money.

ATM networks

Automated teller machines (ATMs) are a familiar sight to most customers. ATMs are electronic devices that allow customers to access their bank accounts to withdraw cash, make deposits, and initiate transfers. An ATM network, also known as an “interbank network,” allows cardholders whose cards were issued by a financial institution that participates in that network the ability to conduct ATM transactions. ATM networks often give cardholders access to other services.

Here are the major ATM networks around the world today:

• Global
  The two biggest global ATM networks are Cirrus and Plus, owned by Mastercard and Visa, respectively.

• Africa
  123, Multicaixa

• Asia and the Middle East
  1LINK, ALTO, atm5, ATM Bersama, BancNet, Banks ATM Network and Customer Services (BANCS), Cashnet, CashTree, Clearing House Automated Transfer System (CHATS), Dutch-Bangla Bank Nexus, Electronic Payment Services (EPS), Encash Network Service, EZ-Link, Faster Payment System (FPS), Isracard, JETCO, LankaPay, Link, MEPS+, MNET, National Financial Switch (NFS), Nationlink, PayNet, PRIMA, RuPay, Saudi Payments Network, Shetab Banking System, Sri Lanka Interbank Payment System (SLIPS), The Benefit Company, UnionPay, Yucho

• Europe
  Allied Irish Banks Banklink, Bancomat, Bancontact, Currence, EUFISERV, Euronet Worldwide, European Payments Initiative (EPI), girocard, Cartes Bancaires (CB), KoronaPay, LINK, Mir, Multibanco, Otto., Sbercard, Sistema de Tarjetas y Medios de Pago, Vocalink

• North America
  Accel, ACCULINK, Allpoint, Armed Forces Financial Network (AFFN), ATH (Puerto Rico and the Caribbean), Co-op Solutions, Interac, Interlink, Jeanie, MoneyPass, New York Currency Exchange (NYCE), Presto!, PULSE, SHAZAM, STAR, SUM

• South America
  A Toda Hora, Banco24Horas, Banelco, Banred, GlobalNet, Redbanc, Suiche 7B

How do payment networks work?

Most payment networks use the internet to facilitate communication between member entities and the electronic movement of funds between accounts. Some payment networks that predate the internet initially used other means; for example, wire transfers first conducted business via telegraph wires.

While there are some similarities, each payment network conducts business in a different way. Here’s a brief overview of how various types of payment networks tackle customer transactions.

How do ACH and wire transfers work?

ACH transfers and wire transfers both involve the transmission of funds through electronic networks. No cash, paper checks, or physical credit or debit cards are used in these EFTs. Although ACH transfers and wire transfers use different networks and have slightly different operating rules, the overall process is similar:

1. Originating bank initiates the transfer

In ACH transfers, the Originating Depository Financial Institution (ODFI) is the bank that initiates the request for funds transfer. Because ACH transfers can be initiated from either end—the account where the funds are being deposited or the account from which the funds will be withdrawn—the ODFI can be either bank.

2. Receiving bank fields the request

The Receiving Depository Financial Institution (RDFI) is the bank that receives the request for funds transfer. Like the ODFI, the term “RDFI” does not necessarily refer to the bank where funds will be deposited, but to the financial institution that does not initiate the funds transfer. It’s possible for the RDFI to receive a request to send funds from one of their accounts to an account with the ODFI.

3. Available funds are confirmed

The ODFI and RDFI communicate to confirm that the requested funds are available.

4. Funds are settled

ACH and wire transactions are settled, meaning the funds are transferred to their final destination, on different timelines. Typically, wire transfers are settled in real time, and usually cost more because of this. ACH transfers work a little differently: Outstanding transaction requests build up in a queue, and at certain intervals, all outstanding requests are settled at once. (This happens at 6:00 a.m., 12:00 p.m., 4:00 p.m., 5:30 p.m., and 10:00 p.m. Eastern Time.) This means ACH transfers can take longer than wire transfers, but they are usually less expensive.

How long do wire transfers and ACH transfers take?

Historically, wire transfers were faster than ACH transfers. But today, that’s only true some of the time. Recent changes to the Automated Clearing House operating rules mean that most ACH transfers are now settled within one business day.

Credit card payments

Credit card networks process 1 billion credit card transactions daily around the world. There are four major credit card networks that operate in the US, and dozens of others that operate in different regions of the globe, but payments on these networks generally function in a similar way:

1. Customer initiates payment

The process begins when a cardholder submits their credit card to a business’s point-of-sale (POS) terminal, card reader, or online checkout, initiating the transaction. The customer can enter their card number manually, swipe the card, insert the card’s EMV chip, or tap the card to engage their card’s contactless payment mechanism. If the customer is paying using a card stored in a digital wallet, they will also tap to pay, as they would with a card enabled with near-field technology (NFT).

2. Business’s payment terminal connects with credit card network

• If the card network is also the issuer
  
• If the card network did not issue the card
  

3. Card network tells business if transaction is approved or denied

Stripe supports all major global credit card networks, in addition to regional networks such as Cartes Bancaires in France and Interac in Canada.

How do credit card payments work?

For more detailed information about credit card payments, card networks, and how they work, read this article.

How do ATMs work?

ATMs allow people to access cash from their bank accounts, deposit checks and cash, and view their account balances—without walking into a bank and speaking to a teller. Since the first ATM appeared at a Barclays bank in London in 1967, millions of these terminals have been set up all over the world—not just in banks, but everywhere from delis to nail salons. As of 2021, there were 40 ATMs per 100,000 people globally.

ATM technology can vary considerably, depending on when an ATM was built. There are still older ATMs in operation today, which offer a different scope of services than newer ATMs with more dynamic features. Regardless, most ATMs have the following basic components:

• Card reader
  
• Display
  
• Keypad
  
• Cash dispenser
  
• Printer
  

While the experience of using an ATM will vary slightly, depending on the specific machine, most ATMs follow some version of the following steps:

1. Customer inputs debit card

This could mean swiping the card’s magnetic stripe or inserting the end of the card that contains an EMV chip.

2. Customer enters PIN when prompted

This will happen either on a manual keypad or the ATM’s touchscreen.

3. Customer selects which operation they want to perform

This can include some or all of the following, depending on the type of ATM they’re using:

• Withdrawing cash
  
• Depositing cash or checks
  
• Checking account balances
  
• Transferring funds between accounts
  
• Making bill payments
  

If making a deposit:

• Customer inserts checks or cash for deposit
  
• Deposit amount appears on the screen for the customer to confirm
  
• Receipt prints (sometimes by request only)
  

If making a withdrawal:

• Customer selects which account they would like to withdraw cash from
  
• Customer selects amount of cash they wish to withdraw
  
• If the funds are available, ATM dispenses cash
  
• Receipt prints (sometimes by request only)
  

As ATM technology continues to evolve, the customer experience will evolve with it.