Three-Party Schemes

Defined Terms and Documents

Three-Party Card Schemes or Three-Party Schemes means The Personal Credit Card Market in Australia: Pricing over the Past Decade (by Iris Chan, Sophia Chong and Stephen Mitchell from RBA's Payments Policy Department) notes "... Three-Party Schemes such as American Express, Discover Card or Diners Club generally act as sole issuer and acquirer, resulting in three parties being involved in the payment process:
*        Cardholder;
*        Merchant; and
*        Scheme (American Express, Diners Club 'et al' generally act as sole issuer and acquirer).

American Express or Diners Club constitute the Scheme by performing the joint functions of Credit Card Issuer and Card Acquirer that exist under Four-Party Schemes.

There are no Interchange Fees in Three-Party Card Schemes (such as American Express and Diners Club) because the card Scheme itself is the sole acquirer for transactions on its cards, and typically also the sole issuer. Instead, rewards programs in this model are funded directly through fees paid by the Merchants.

Hence, the higher the average Merchant Service Fee for a Three-Party Scheme, the more generous the rewards that scheme is able to offer. At the same time, a high Merchant Service Fee tends to discourage acceptance of a card by Merchants. To some extent this acts as a competitive discipline on Merchant Service Fees, although some Merchants may feel that declining to accept a particular card is not a realistic option.

A Three-Party Scheme consists of three main parties as described in the above diagram.

In this model, the issuer (having the relationship with the cardholder) and the acquirer (having the relationship with the Merchant) is the same entity. This means that there is no need for any charges between the issuer and the acquirer. Since it is a franchise setup, there is only one franchisee in each market, which is the incentive in this model. There is no competition within the brand; rather you compete with other brands.

Examples of Three-Party Schemes are Diners Club, Discover Card, American Express and other closed loop system like restaurant checks.

See Payment Card Networks, Four Party Schemes, Credit Card Payment Schemes, eftpos Cards and eftpos