MasterCard 2010 Annual Report Download - page 17

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Payment Services and Solutions
We provide transaction processing and other payment-related services as well as a wide range of payment
solutions to enable our customers to design, package and implement products and programs targeted to the
specific needs of their customers (which include cardholders, businesses and governments). We work with
customers to provide customized solutions, as well as more general solutions. Our payment solutions are built
upon our expertise in payment programs, product development, payment processing technology, consulting and
information services and marketing. We also manage and promote our brands for the benefit of all customers
through brand advertising, promotional and interactive programs and sponsorship initiatives.
Transaction Processing on the MasterCard Worldwide Network
Introduction. We operate the MasterCard Worldwide Network, our proprietary, global payments network
that links issuers and acquirers around the globe to facilitate the processing of transactions and, through them,
permits MasterCard cardholders to use their cards at millions of merchants worldwide. We process transactions
through our network for financial institutions and other entities that are our customers, in more than 150
currencies in more than 210 countries and territories.
Typical Transaction. A typical transaction processed over the MasterCard Worldwide Network involves four
participants in addition to us: cardholder, merchant, issuer (the cardholder’s financial institution) and acquirer (the
merchant’s financial institution). The following diagram depicts a typical point-of-sale card transaction:
In a typical transaction, a cardholder (A) purchases goods or services from a merchant (B) using a card or
other payment device. After the transaction is authorized by the issuer (D) using our network, the issuer pays the
acquirer (C) an amount equal to the value of the transaction, minus the interchange fee (described below), and
posts the transaction to the cardholder’s account. The acquirer pays the amount of the purchase, net of a discount,
to the merchant (referred to as the “merchant discount”). The merchant discount, among other things, takes into
consideration the amount of the interchange fee. Our standards generally guarantee the payment of transactions
using MasterCard-branded cards and certain transactions using Cirrus and Maestro-branded cards between
issuers and acquirers.
Interchange Fees. The interchange fee is equal to the difference between the amount of the payment
transaction (the transaction amount) and the amount the issuer pays the acquirer (the settlement amount).
Interchange fees represent a sharing of a portion of payment system costs among the customers participating in
our four-party payment card system. As such, interchange fees are a key factor in balancing the costs consumers
pay and the costs merchants pay. We do not earn revenues from interchange fees. Generally, interchange fees are
collected from acquirers and paid to issuers (or netted by issuers against amounts paid to acquirers) to reimburse
the issuers for a portion of the costs incurred by them in providing services that benefit all participants in the
system, including acquirers and merchants. In some circumstances, such as cash withdrawal transactions, this
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