Scheme vs Processing in Payments: What’s the Difference?
If you’ve ever used a debit or credit card, which almost certainly you have, you’ve been part of a complex dance between banks, networks, and tech systems. Behind the scenes, two key players keep the whole thing running smoothly: the scheme and the processor.
In EU it is particularly relevant - and there is a regulation which affects how each of these work with each other.
What’s a Scheme?
One metaphor that comes close to explaining this in a simple way is that A scheme is like the studio creating a movie.
In payments, the scheme:
- Creates the rulebook for how transactions should work. This is a massive and ever changing rulebook, with evolving regulation, competition and innovation.
- Decides who gets to be part of the network—like which banks, merchants, and payment providers.
- Set the fee called the Interchange Fee for the usage of the scheme. This is one of key drivers of revenue for Banks as they receive this fee every a card is being used.
- Ensures everyone follows the same technical and commercial standards.
For example:
- In Europe, Visa Europe Limited (VEL) is the scheme that governs Visa cards.
- For Mastercard, it’s Mastercard Europe SA—responsible for setting the rules and onboarding players into the Mastercard network.
- American Express is a bit different: it acts as both the scheme and the processor, meaning it owns the rules and the rails. It’s a vertically integrated model.
Like a film studio ensuring every production follows legal and brand guidelines, a scheme oversees how the payments ecosystem behaves across all its participants.
What’s Processing?
Now think of the processor as the production crew that actually makes the movie happen.
In payments, the processor:
- Moves your payment data from the shop to your bank and back.
- Checks whether you’ve got enough money.
- Sends the approval to the terminal.
- Ensures the money reaches the right place.
For Visa in Europe, this role is handled by Visa Technology and Operations LLC (VTO).
Mastercard, like Visa, uses separate licensed third-party processors or its own platforms for transaction routing—depending on the region.
The processing fees are separate, and are governed by the Processor which are influenced by a wide variety of factors such as region, transaction types etc.
Why Are They Separate?
Thanks to a European law called the Interchange Fee Regulation (IFR), schemes and processors must be independent from each other in the EU.
Why? To keep things competitive and transparent:
- So the scheme doesn’t unfairly favour its own processor.
- So other processors can compete on pricing and innovation.
- So banks and merchants can choose the partners that best fit their needs.
It’s a bit like saying the studio can’t own the only production crew in town—there has to be choice.
An example
I buy groceries in London using a Visa debit card. What’s happening in the background?
Step 1: The Scheme (VEL)
- Sets the rules for how the transaction should flow.
- Defines the interchange fee—how much the merchant’s bank pays to my bank.
- Ensures both banks follow the standards.
Step 2: The Processor (VTO)
- Sends the payment request from the shop to Apurv’s bank.
- Verifies if funds are available.
- Sends back an approval (or decline).
- Initiates the movement of money between banks.
VEL and VTO both fall under Visa’s umbrella, but they operate independently of each other given the regulation.
🌍 Local Schemes and Processors in Europe
Many countries in Europe have their own local schemes and processors that work alongside global networks like Visa and Mastercard.
France has a local Scheme like Cartes Bancaires (CB) and cards are often co-branded, with another major scheme like Visa or Mastercard. The transaction can be processed through VTO or go through a local processor like STET.
Germany has Girocard, Italy has Bancomat as local schemes. In Spain there is a large local processor called Red Sys. This diversity in ecosystem promotes competition. There are new ways to pay and be paid developed all the time too. Like Ideal - which is an ACH based system on Bank rails. Vipps is a local method in the Nordics which is wallet which can be used for both sending money and for buying goods and services.
These systems are designed for Domestic / national use cases. For example:
- CB dominates in France on card rails, accepted almost everywhere.
- iDEAL lets Dutch shoppers pay directly from their bank accounts—no card needed.
- Vipps in the Nordics allows people to send money instantly using just a mobile number and buy things too.
