What Distinctions Exist Between Discover and American Express and Visa and Mastercard

Generally speaking, this information is irrelevant to the average buyer. The cardholder will likely need to be made aware of the difference. There may not be any outward signs of significance, but it has significant implications for processing credit card transactions and collecting any associated fees. Credit card issuers like Discover and American Express can get a larger share of transaction fees by processing them.

Exactly who is participating

It takes a while for a credit card transaction to complete and appear on your statement from when your card is swiped at the register. Many of these procedures instantly involve several people, including yourself. In a typical exchange, the following parties are involved:

One who holds a credit card. This is the cardholder who is responsible for both making purchases and paying the associated fees.

In financial parlance, "the issuer" refers to the issuing bank. The issuer of the card is responsible for managing the associated account.

Those who accept credit card payments, such as shops, service providers, and companies.

Bank servicing the merchant: This financial institution, also called an "acquirer," supplies the store with the necessary card-accepting hardware. The merchant's account is credited when a card is used to purchase.

Payment system intermediate; entity handling financial dealings. The system checks with the card issuer to ensure the card is legitimate, assigns the purchase to the correct cardholder, and transfers funds to the merchant's bank.

Of course, it would be impractical for businesses to have direct relationships with all credit card-issuing financial institutions. It's impossible to do that, given thousands of different issuers. Instead, businesses interact with Visa, Mastercard, Discover, and American Express, the four major payment networks. A merchant's only requirement is a contract with Visa, and Visa will function as the intermediary between the merchant and the issuing banks so that the merchant can take Visa cards from any issuer.

Financed by user fees

Fees assessed for each credit card transaction fund the entire system. Merchants are responsible for these charges and often pass them on to customers through higher pricing, just as they would any other overhead expenses. The issuer, the merchant's bank, and the payment network all take a cut of these costs. (The card issuer also gives a portion of this cash back to the cardholder through rewards.)

Now you can see the distinction:

Only financial institutions can issue Visa and Mastercard cards. Financial institutions, large and small, like Chase, Citi, and Wells Fargo, all issue branded credit and debit cards.

Discover, and American Express can streamline the transaction process, lower costs, and increase revenue by issuing and maintaining payment networks and credit cards. However, the added fee revenue helps to cover the high costs of establishing and maintaining such networks.

Comparing the processes of processing and issuing

Your bank and the business' bank communicate through credit card processors. A payment processor checks your payment request to make sure it is genuine and that you are initiating the payment. If the details check out, the transaction is authorized, and funds are sent from your bank account (or charged to your credit card) to the merchant's account. Square, founded by a former employee of Visa, is another credit card processor.

Acceptance

Processors of credit card payments earn revenue by taking a cut of each transaction processed through their system. American Express cards are less commonly accepted than other cards since the company often charges a greater fee to stores accepting the card.

Eligibility

A wide variety of credit cards are available, including some that offer cash back or miles on specific airlines or hotels. Each has its criteria for qualification, including minimum credit score and length of credit history. Among major issuers, American Express is the most selective, as most credit cards have minimum credit score requirements of 670.

Credit cards for those with good credit (600+) are available, as are cards for people with fair credit (570-669), terrible credit (300-580), and no credit at all. Although these cards often come with fewer rewards, they are useful for establishing or improving credit history.

Additional guidance about credit cards

Yet, the four largest credit card processors transact commerce with millions of merchants across more than a hundred different nations. The Nilson Report estimates that Visa and Mastercard have 52.9 million merchant locations worldwide, with Discover at 44 million and American Express at 25.3 million.