Visa and Mastercard are two of the most popular card networks, with a combined 2.4 billion credit cards in circulation in the U.S. But which offers the best credit card option?
Both cards are accepted globally and offer very similar capabilities. So, how do vendors know which card offers the best features for their needs?
Something to note before we get started: It’s the card issuers, not the card companies themselves, that should be the focus of your attention.
In this post, we’re going to provide overviews of both Mastercard and Visa and outline the similarities and differences between both card networks, as well as the role that financial institutions play in deciding their features and perks.
TL;DR
- Visa and Mastercard are the world’s two largest payment networks, offering a range of prepaid, credit, and debit card options.
- Thanks to their revenue structure and global presence, Visa and Mastercard are extremely similar in how they operate, and there is little discernable difference to the cardholder.
- The main differences between Mastercards and Visa cards are not due to the card companies themselves but the financial institutions that issue the cards and set the interest rates and fees.
Overview of Mastercard
Mastercard was created by a consortium of banks in 1966 in an effort to compete more effectively with Visa, which at the time had a virtual monopoly on payment processing. Until its initial public offering (IPO) in 2006, Mastercard was under the cooperative ownership of over 25,000 financial institutions, which also issued its cards to consumers.
Now a global payment technology platform, Mastercard brands prepaid, debit, and credit cards in addition to offering a range of business and finance services globally. At the end of December 2020, Mastercard’s total U.S. credit purchase volume was $837 billion, with total net revenue of $15.3 billion.
Because Mastercard is not in charge of issuing its cards, it doesn’t make money via cardholder activity. Instead, it earns revenue from charging banks assessment fees and network fees to issue cards and process payments.Mastercard also takes a fee during different steps of the payment process, such as when the issuer authorizes a transaction or when funds settle in an account.
Overview of Visa
Visa is the largest credit card network globally by payment volume outside of domestic China. There are currently 3.9 billion Visa-branded cards in circulation worldwide, which are issued by nearly 15,000 financial institutions.
Originally founded by Bank of America in 1958, the program was expanded by licensing this payment technology to other financial institutions, eventually breaking off and becoming the independent financial services corporation we know today. In addition to prepaid, debit, and credit cards, Visa also offers a full suite of financial services, including ATMs, retail partnerships, theft protection, business analytics, and more.
Like Mastercard, Visa earns revenue by charging the card issuer a fee in order to process transactions using its branded cards, which are usually passed to the merchants accepting Visa payments.
What are the similarities between Visa and Mastercard?
The Visa and Mastercard symbols are ubiquitous at checkouts across the world. So, what do these two major payment processing networks have in common?
Neither card network sets the terms and conditions of use
Unlike American Express, neither Visa nor Mastercard are in the charge of issuing or distributing their own debit and credit cards. Instead, both companies license card issuing rights and provide the technology for banks to process credit card payments made between customers and merchants.
Instead, managing Mastercard and Visa cards is the responsibility of financial institutions, such as banks or credit unions. They act as debit and credit card issuers and are responsible for determining transaction fees and what rewards programs cardholders are eligible for.
This means a Visa credit card that has been issued by Bank of America may have quite different interest rates or payment terms than a Visa card offered by Chase. An Amex card, by comparison, is issued directly by American Express, which also decides annual fees and internet rates.
Near universal acceptance worldwide
Both Visa and Mastercard credit cards are accepted almost anywhere. If a merchant accepts one, they almost always accept the other, making them reliable options unlike American Express or Discover, which are occasionally excluded by merchants due to higher fees.
If a store or online merchant shows the Visa or Mastercard symbols at their checkout, they must accept all cards that belong to the Visa or Mastercard network, no matter who the issuing bank is and what country the card originates from. This makes both card brands very reliable options when traveling abroad.
Fees & reward tiers
Crucially, the reward tier of the card (e.g., World Elite vs. Traditional) directly impacts the interchange fee the merchant pays, even if the issuing bank is the same. Higher rewards mean higher costs for the merchant.
As previously stated, the banks that issue cards under the Visa and Mastercard brands are responsible for deciding what fee structures and benefits they want to offer. However, most card offers fall into one of four categories:
Low-fee credit cards. These cards come with fewer perks but typically offer the lowest fees and interest rates, as well as greater flexibility in the form of balance transfers and adjustable repayment conditions.
Premium credit cards. Premium cards boast the highest credit limits and annual fees, but also come with some of the best perks, such as concierge services, extended warranties, or rental cars, just to name a few.
Rewards credit cards. This is the best option for consumers who want to earn cash-back or loyalty points on their everyday spendings, such as groceries or utility bills.
Frequent flyer credit cards. Travel-based cards allow cardholders to earn points that they can redeem on flights or travel rewards, usually with an airline that the bank partners with. Frequent flyer cards also offer associated benefits, such as travel insurance, lost luggage reimbursement, or emergency assistance.
Mastercard offers four different card tiers with escalating benefits: Standard & Gold Mastercard, Titanium & Platinum Mastercard, Mastercard World, and World Elite Mastercard. Visa, meanwhile, offers three: Visa Traditional, Visa Signature, and Visa Infinite. The specifics of these cards will vary depending on the bank that’s responsible for issuing them but generally include very similar benefits.
Security features
Visa and Mastercard both offer a range of security benefits. This is thanks to federal regulations and growing competition within the marketplace, which has helped make these features standard. They include:
Purchase protection. If your card details are involved in an unauthorized or fraudulent purchase, both Visa and Mastercard will cover the most of issuing chargebacks once they are reported to the issuing bank. Mastercard offers purchase protection for all of its cards, but the most generous policy is reserved for the World and World Elite Mastercard options. Visa also offers additional options in the form of trip cancellation or interruption.
Cell phone protection. Cell phone insurance to protect customers in the case of breakage or theft is a common offering by credit companies, including Citi and Chase in addition to Visa and Mastercard. World Mastercard offers cardholders $1,000 in annual coverage, while Visa Signature members get cell phone protection for one calendar month each time they pay their wireless bill using their Visa card.
Return protection. This kicks in when a cardholder is unable to return a purchase made with their branded card. Mastercard offers a satisfaction guarantee policy, which offers refunds up to $250, so long as a request is logged within 60 days of the purchase taking place. Visa Infinite and Signature offer return protection for purchases made within 90 days, up to a value of $300 and $250 respectively.
Digital payment options
With the invention of mobile and contactless payment, both Visa and Mastercard have expanded their payment offerings beyond card transactions to adapt to changing consumer habits. Mastercard offers Tap & Go Payments, a parallel to Visa’s Contactless Indicator cards. Both card companies have also expanded their digital offerings by providing the secure tokenization technology that enables mobile wallet features like Apple Pay, Google Pay, and Samsung Pay.
What is the difference between Mastercard and Visa?
As shown above, Mastercard and Visa have extremely similar offerings, being both card networks that facilitate and govern payment acceptance.However, there are areas where the card companies differ:
They operate on different payment networks
The biggest (and most obvious) difference between Visa and Mastercard is that they operate on totally separate payment networks.
While a bank might issue both Visa and Mastercard branded cards, they are processed using different systems. This means that a cardholder cannot use a Visa card at a merchant that only offers Mastercard and vice versa. Over the years, this has led to both card companies pursuing exclusive partnerships with major retailers. Note that some large retailers pursue exclusive deals (like Costco did with Visa for many years) or negotiate extreme discounts to minimize fees.
Rewards and benefits
Although the overarching structure of its card tiers is the same, some financial comparisons show Visa offering slightly stronger travel or purchase benefits for its mid-tier products compared to Mastercard’s comparable offerings. This being said, most of the standard features, such as price protection and warranty protection, are fairly comparable between card companies.
They have different fee structures
Although both Visa and Mastercard earn the majority of their revenue through payment processing fees, how they go about doing this is slightly different. Visa charges data processing fees to the card issuer on a per-transaction basis, while Mastercard charges issuing banks connectivity fees to use the Mastercard network itself during different stages of the payment processing workflow. Since financial institutions usually charge an annual fee to cardholders, their experience is very similar.
Conclusion
The key factors that will determine your choice of credit card—fees, interest rates, rewards, perks—actually have nothing to do with the credit card companies, but the issuing bank.
For the merchant, this complexity (different interchange rates for every card tier) means cost is unpredictable. The solution is a transparent processor. Stax removes the anxiety of this variable cost by offering a subscription model with 0% markup on the direct interchange rate, guaranteeing cost predictability and the lowest possible fees, regardless of whether the customer uses Visa or Mastercard
FAQs about Visa and Mastercard
Q: What is the main difference between Visa and Mastercard?
The main and most obvious difference between Visa and Mastercard is that they operate on completely separate payment networks. While both offer globally accepted cards and a range of financial services, the specifics like interest rates, rewards, and fees are primarily set by the issuing banks or financial institutions and not by Visa or Mastercard themselves.
Q: Who issues Visa and Mastercard?
Visa and Mastercard themselves do not issue cards. They license the rights to issue cards and provide the technology for the payment process to financial institutions, like banks and credit unions. These institutions decide transaction fees, rewards programs, and other cardholder benefits.
Q: How do Visa and Mastercard make a profit?
Visa and Mastercard mainly earn revenue by charging the card issuer a fee to process transactions using its branded cards.
Q: Is Mastercard accepted more widely than Visa?
Both Visa and Mastercard are accepted widely around the globe, and the two networks have an almost identical global merchant acceptance. If a store or online merchant displays either the Visa or Mastercard symbol, they must accept any card that belongs to these networks, regardless of the issuing bank or the card’s country of origin.
Q: Can I use my Visa card at a merchant that only accepts Mastercard and vice versa?
No, Visa and Mastercard operate on completely separate payment networks. A merchant that only accepts one cannot process transactions from the other.
Q: What are some of the services provided by Visa and Mastercard?
Beyond card offerings, Visa and Mastercard offer services such as ATMs, retail partnerships, theft protection, business analytics, and more. They have also expanded into digital payment options, including mobile and contactless payments. However, the specifics can vary depending on the individual card and issuing institution.
