Visa, MasterCard, Discover, and American Express are the four major credit card processing networks in the United States. They establish credit card processing criteria, determine credit card processing fees, and enable credit card transactions.
Credit card processing networks may collaborate with distinct issuing banks to provide consumers with credit cards. Consumers are also billed for their transactions, and unpaid balances are collected by issuing banks.
Issuing of Credit Cards
While Visa, MasterCard, Discover, and American Express all have infrastructure for processing credit card transactions, only American Express and Discover also act as banks, assisting retailers and consumers with financing.
You may have observed that you make payments to your credit card issuer rather than the processing network if you have a Visa or Mastercard. Visa and MasterCard do not issue their own credit cards. Instead, these networks collaborate with issuing banks, which assume the risk of providing credit to customers.
A Visa or MasterCard credit card is issued by a different bank every time you see one. Issuing banks, commonly known as "credit card issuers," include Bank of America, Capital One, and Chase.
Discover and American Express are two of the most popular credit cards.
Instead of partnering with banks and credit unions to issue credit cards, American Express and Discover serve as both the processing network and the issuer for the majority of their cards.
Until 2004, Visa and Mastercard prohibited banks from issuing American Express and Discover cards to their customers. Following a successful antitrust lawsuit against Visa and Mastercard, American Express and Discover began issuing cards through other banks, although they continue to issue the majority of their credit cards and bear the risk of providing credit to customers.
Initially, American Express exclusively issued charge cards, which compelled customers to pay their entire sum each month. Revolving credit cards have been added to the company's product line. It caters to more affluent customers and has a higher proportion of the market for corporate credit cards.
Acceptance Around the World
Merchants accept credit cards from all four processing networks globally, but you'll have a harder time finding merchants who take American Express and Discover once you leave the United States.
Card Processing Fees for Credit Cards
The majority of people are probably ignorant of the fees involved with credit card processing. A credit card transaction necessitates a large number of companies and resources. Merchants pay an interchange rate to accept credit cards, which is established by credit card processing networks. On top of the interchange rate paid by processing networks, the merchant's bank may levy an extra fee.
Interchange costs, which are levied based on numerous parameters such as the type of business and the type of credit card, vary between the four major processing networks. Interchange charges for Visa and MasterCard are usually identical. The interchange rate for Discover may be slightly higher. Furthermore, American Express credit cards have a greater interchange rate than other processing networks.
The higher interchange charge is generally the reason why businesses refuse to accept American Express.
Processing of Debit Transactions
Debit card transactions are processed by a few of the major processing networks. Debit cards work similarly to credit cards, with the exception that debit card transactions are paid from the consumer's bank account rather than a credit line.
The bulk of debit card transactions in the United States are processed through the Visa and MasterCard networks. Banks collaborate with Visa and Mastercard to provide debit cards to their clients.
Which Network Is the Most Effective
For many consumers, it is preferable to choose a credit card based on the credit card issuer and the attributes of the individual card rather than the credit card processing network. If the majority of your transactions will take place in the United States, a credit card from one of the four major processing networks should suffice. If you want to go internationally, though, a Visa or Mastercard may be a better alternative because they are accepted more widely around the world.