Three-Party Card Model

The three-party card model is a card payment system in which a single company plays several roles at once: it runs the network, issues cards to cardholders and contracts directly with merchants to accept them. The three parties are therefore the cardholder, the merchant and the network company itself. American Express, Discover and Diners Club were built this way, and Japan's JCB began the same way.

The model is often called a closed-loop system, and it is the main alternative to the four-party card model used by Visa and Mastercard, where separate banks act as issuer and acquirer. In practice the line has blurred: most three-party networks now also license outside banks, so they run a mix of closed-loop and open-loop business.

Picture a department store that issues its own gift cards, sells goods in its own shops and keeps all the records itself. Because it is on both sides of every purchase, it does not need to agree fees with anyone else. It simply decides what the shop pays, what the shopper gets back as a reward and how the money moves.

A three-party card network works like that store, only on a national or global scale. The company knows the cardholder, because it opened the account, and it knows the merchant, because it signed the merchant up. The fee the merchant pays goes straight to the company, which uses it to fund the card's benefits, cover losses and earn a profit.

When a cardholder pays, the merchant sends the transaction either directly to the network company or through a payment processor that passes it on. The company, acting as its own card network, checks the cardholder's account, approves the payment and later pays the merchant, keeping a fee. The authorization and settlement steps are the same as in an open-loop system, but no money changes hands between two banks.

Because the issuer and acquirer are the same firm, there is no interchange in the usual sense. The merchant pays one blended merchant discount rate to the network company, which keeps all of it. That rate has historically been higher than the average cost of a Visa or Mastercard payment, which the network justifies by its spending-heavy cardholders and generous rewards. This is the closed design described more generally in closed payment networks.

• Diners Club. Launched in 1950 as a card for paying at restaurants, it is usually counted as the first multi-merchant charge card. Discover bought Diners Club International in 2008.
• American Express. It issued its first charge card in 1958 and remains the largest three-party network by spending. It signs most of its merchants directly.
• Discover. Launched by Sears in 1985, it later added the Pulse debit network, bought in 2005. Capital One completed its purchase of Discover Financial Services on 18 May 2025.

Few networks remain purely closed. In the United States, a 2001 court ruling in United States v. Visa, upheld on appeal, struck down Visa and Mastercard rules that stopped their member banks from issuing cards on rival networks. From 2004 American Express began signing banks such as MBNA and Citibank to issue its cards, and it has long licensed partner banks to issue and acquire in many other countries. Discover licensed outside issuers and, through partnerships, has had its cards accepted on several foreign networks.

After the Capital One deal, the network owner is also one of the largest US card issuers. Capital One began moving its debit cards from Mastercard to the Discover network, and has said part of its credit card business will follow. Merchants have noticed because, as payments companies such as Stripe have told their users, those debit cards are no longer subject to the Regulation II interchange cap once they move.

The Durbin Amendment caps interchange on US debit cards from large issuers, but its fee standard is written around a fee paid by an acquirer to a separate issuer, and three-party networks, where no separate issuer is paid, have been treated as falling outside the cap. The rules on network choice are covered in debit routing.

In Ohio v. American Express (2018), the US Supreme Court ruled 5–4 that American Express's anti-steering rules, which stop merchants from nudging customers towards cheaper cards, did not break antitrust law. The court treated the card network as a two-sided platform serving both cardholders and merchants. In the European Union, the Interchange Fee Regulation treats a three-party scheme as a four-party one when it licenses other issuers or acquirers or issues cards with a co-brand partner, so its caps can apply. A scheme that issues all its own cards and signs all its own merchants stays outside those caps. Merchants in some markets respond to higher fees through card surcharging, where the law allows it.

• American Express
• Discover Global Network
• Supreme Court of the United States: Ohio v. American Express Co. (2018)