Since their inception credit cards have been instrumental in expanding businesses and transactions by facilitating purchases and the expansion of the global economy. Today there are four major credit card networks; American Express, Discover, Mastercard, and Visa.
They are not the ones extending credit to the customers, the bank does that, but is their worldwide network that allows a credit or debit card to be used at millions of storefronts around the world. To better gauge which network is better or more popular, it would help to better understand some key facts about the industry. Below we explore some differences between a credit card network and a credit card issuer. We also look at different card networks there are along with their differentiating factors such as their acceptance, both in the U.S. and abroad, and their fees.
Credit Card Issuers
The credit card issuer, as the name suggests is the entity issuing the credit card to consumers. This is a financial institution, usually a bank or a credit union that extends the credit to the cardholders. It is the credit card issuer that offers various benefits to apply for credit cards offered by them, vet applications for approval, and determine the suitable credit terms, if approved, based on the applicant’s credit history and profile.
Credit Card Networks
The card network is the intermediary that facilitates the transaction between the merchant and the card issuer via their cyber payment infrastructure. The facilitation process of a transaction involves authorizing and processing it, setting its limits, enabling payments between merchants and credit card issues on behalf of the cardholders. For this service, they charge merchants an assessment fee. There are four main card networks worldwide; American Express, Discover, Mastercard, and Visa.
These card networks determine which type of credit cards merchants can accept. For example, if a merchant is not set up on the Discover network, that merchant will be unable to accept Discover cards.
Once you understand the difference between a credit card network versus an issuer, it becomes clearer that many of the benefits offered by a credit card stem from the card issuer. The networks simply collect a toll for each transaction regardless of which bank issues the card, as long as it’s on their network.
Although Visa and Mastercard are almost identical in payment processing volumes and merchant acceptance, there are very negligible differences between the two. Both these card networks offer specific benefits for transactions processed. These benefits can include price protection, purchase protection, rental car, and travel insurance, as well as extended warranties.
Discover had offered similar benefits for its cards previously, but it no longer does. One key benefit offered by Discover is that doesn’t charge additional fees for international transactions. That fee is 3% for transactions on the Visa network.
For any given card transaction, there are multiple parties involved that seamlessly enable the payment to be processed. There are different fees for credit card issuing banks, the payment networks, and finally, the payment processor, the entity that processes and receives the payment for the merchant. Each party is involved in the processing of payment and they all have their fees. There are three main types of fees charged, an assessment fee and an interchange fee, and the merchant acquirer fee.
- Assessment fee – this fee is charged by the payment networks and is a fixed rate charged by Visa or Discover, etc., with merchants having no control over the rates that are set.
- Interchange fee – this fee is charged by the issuing bank that issued the card. Although fixed, there are variations to the rate charged predicated on the card type, merchant risk, and how the card was accepted, i.e. swiped, dipped, keyed in, or not present.
- Merchant acquirer fee – finally, this fee goes to the acquirer bank that processes the payment and deposits the funds into the merchant’s account. There may be some flexibility in the merchant acquirer fees as they are competing for merchant accounts businesses in a crowded industry.
Acceptance in the U.S.
Within the United States, all the three major card networks, Discover, Mastercard, and Visa are accepted by almost the same number of merchants. The number of merchants that accept Discover cards is 10.6 million, where there are 10.7 million merchants for both Mastercard and Visa. The numbers are identical among the three card networks making them equally popular.
Internationally, there are some differences among the major card networks. Discover is particularly popular as it has the largest number of merchants accepting Discover cards, compared to Mastercard and Visa. There are 48 million merchants that accept Discover, 46 million for Visa, and 37 million for Mastercard.
All things considered, one of the best ways to gauge which network is most popular is to look at which card networks have the greatest market share of purchase volume. Based on the Nilson Report data from the first quarter of 2021, Visa had a 53% market share with a purchase volume of over $570 billion. A distant second was Mastercard with a 23.3% market with about $220 billion purchase volume. The Discover network has a market share of 4% from a purchase volume of $37.7 billion.
Although the popularity of a card network is one consideration, merchants should be aware that there are equally important metrics, such as their acceptance, both at home and abroad, and the cost they may incur by accepting cards of different networks.
There is no simple answer on whether there is any one specific card network that is best among all. There are simply some offers from certain networks that work better. If a significant portion of a merchant’s business comes from foreign customers, a network with a larger global reach, or one with limited foreign transactions fees, may be better suited for them.