Difference Between MasterCard and Visa

Sometimes, it seems as though MasterCard and Visa are basically the same thing. Indeed, many of the retailers that accept one type of card accept another. However, even though the two companies often act in concert, the truth is that they are separate companies (they even went public at different times), and they are even considered competitors by some.

Visa and MasterCard: Well-Known Payment Processors

The first thing to understand about both Visa and MasterCard is that they are payment processors. The don't actually issue credit cards at all. Indeed, credit cards are issued by banks and other financial institutions. MasterCard and Visa simply provide the payment networks that allow the transactions to go through. Credit card issuers are the ones that decide what sorts of interest rates to charge, what rewards to offer, and the other terms and conditions associated with credit cards.

MasterCard and Visa make money by charging merchants for their services. In order to access the networks that allow credit card (and debit card) purchases to go through, and connect businesses with customers' banks, merchants pay a charge to payment processors. On top of regular monthly costs associated with accessing the payment networks, Visa and MasterCard also charge interchange fees, based on the transactions that go through.

This means that these payment processors make money on transactions -- even if the customer doesn't make credit card payments, or if the merchant loses money due to a chargeback. MasterCard and Visa may see revenue reduced when fewer interchange fees are paid, but they are not at risk from credit card defaults, since they don't actually issue the cards bearing their logos. Indeed, Visa and MasterCard aren't even concerned about who carries "their" cards since they don't involve themselves in credit card applications and approvals.

Differences Between Visa and MasterCard

Both companies operate in much the same way. Indeed, from a consumer standpoint there really isn't much of a difference between MasterCard and Visa. There are very few retailers around the world that will accept one type of card and not the other. The other major payment processing systems are Discover and American Express, and these two don't have the same reach as MasterCard and Visa. (Interestingly, Discover and American Express actually issue their own cards as well as provide payment processing services.)

The main difference between MasterCard and Visa is the amount of money the companies make. Visa makes more than MasterCard, enjoying greater revenue and having a larger number of assets than its rival. Visa also employs more people. But, for the most part, there really isn't much difference. The main thing is to actually understand that these companies are not credit issuers; they simply facilitate payments. Understanding this can help you make better sense of the financial world, and make more informed credit decisions.

This post was included in the Cash Money Edition of the Best of Credit Cards and Saving Money at Card Wisdom.