How does Mastercard make money?

Banks and other financial entities are actually the ones paying Mastercard when a holder of one of the company's credit cards makes charges with it. Mastercard categorizes these fees into two different categories:

• Domestic assessment fees

• Cross-border fees

Domestic assessment fees are fees associated with transactions between cardholders and merchant financial entities in the same country, while cross-border fees represent transactions between cardholders and merchant financial entities in separate countries. The majority of the revenue Mastercard makes comes from domestic assessment fees.

• Transaction processing fees

Coming in third in Mastercard's revenue streams is transaction processing fees. Again, here Mastercard charges fees to the financial entity, not the cardholder. Transaction processing fees come in two categories:

• Transaction switching

• Connectivity

This part of Mastercard's business model also represents a significant portion of its generated revenue. Mastercard charges these fees in the following scenarios:

• When Mastercard receives a payment of approval for authorization

• When a transaction between two issuing banks clears

• When the payment settles

A transaction processing fee is only a fraction of one cent, however, Mastercard processes thousands of transactions nearly every second of the day, amounting to a considerable amount of profit.