CPP CPP Card Networks & Interchange 1

Question 1

What is interchange in the context of card payment processing?

Accepted Answer

The fee paid by the acquirer to the issuer for each card transaction

Answer

Interchange is the fee paid by the acquiring bank (merchant's bank) to the issuing bank (cardholder's bank) to compensate for transaction risk and funding costs.

Question 2

Which of the following card networks operates a 'three-party' (closed-loop) model?

Accepted Answer

American Express

Answer

American Express traditionally operates a three-party (closed-loop) model where it acts as both the issuer and acquirer, though it now also supports third-party issuers.

Question 3

What is the 'four-party model' in card payments?

Accepted Answer

A model involving cardholder, merchant, issuing bank, and acquiring bank

Answer

The four-party model consists of the cardholder, merchant, issuing bank, and acquiring bank, with the card network (e.g., Visa, Mastercard) facilitating the transaction between them.

Question 4

What is an authorization hold in card payment processing?

Accepted Answer

A temporary freeze on funds equal to the transaction amount pending final settlement

Answer

An authorization hold temporarily reserves funds on a cardholder's account to ensure availability, which is released or converted to a charge at settlement.

Question 5

What does the term 'downgrade' mean in card processing?

Accepted Answer

A transaction qualifying for a higher interchange rate than the optimal rate

Answer

A downgrade occurs when a transaction fails to meet the requirements for a preferred interchange category and is therefore assessed a higher interchange rate.

CPP - Certified Payment Professional Practice Test

CPP - Certified Payment Professional Practice Test

CPP CPP Card Networks & Interchange 1