In the United States, there are four major credit card-processing networks—Visa, MasterCard, Discover, and American Express. They set the guidelines for credit card processing, set the fees for processing credit cards, and facilitate the credit card transactions.
Credit card processing networks may work with separate issuing banks that make credit cards available to consumers. Issuing banks also bill consumers for their transactions and collect payments for outstanding balances.
Credit Card Issuing
While Visa, Mastercard, Discover, and American Express have the infrastructure for processing credit card transactions, only American Express and Discover also operate as the banks that work with merchants and consumers for handling the financing.
If you have Visa or Mastercard, you may have noticed that you make payments to your credit card issuer, not to the processing network. Visa and Mastercard do not issue credit cards themselves. Instead, these networks work with issuing banks, which take on the risk of extending credit to consumers.
Any time you see a Visa or Mastercard credit card, there’s another bank that issues the credit card. Bank of America, Capital One, and Chase are examples of issuing banks, also known as "credit card issuers."
American Express and Discover
Rather than partner with banks and credit unions to issue their credit cards, American Express and Discover act as both the processing network and the issuer for most their credit cards.
Until 2004, Visa and Mastercard blocked banks that issued their cards from issuing American Express and Discover cards. Following a successful antitrust lawsuit against Visa and Mastercard, American Express and Discover began issuing cards through other banks, but they still issue the majority of their credit cards and assume the risk associated with extending credit cards to consumers.
American Express initially only issued charge cards, a type of card that requires cardholders to pay their balance in full each month. The company has added revolving credit cards to its offering. It tends to cater to more affluent cardholders and also has a larger market share of business credit card users.
Credit cards from all four processing networks are accepted by merchants worldwide, but once you travel outside the United States, you’ll have more trouble finding merchants who accept American Express and Discover.
Credit Card Processing Fees
Most consumers are probably unaware of the costs associated with processing credit cards. It takes a lot of companies and resources to complete a credit card transaction. Credit card processing networks set an interchange rate which merchants pay to accept credit cards. The merchant’s bank may charge an additional fee on top of the interchange rate charged by processing networks.
The four major processing networks also differ when it comes to interchange fees, which are charged based on several different factors like the type of business and the type of credit card. Visa and Mastercard tend to set similar interchange rates. Discover’s interchange rate may be slightly higher. And the interchange rate for American Express credit cards is higher than other processing networks.
When businesses don’t accept American Express, often it’s due to the higher interchange rate.
Debit Transaction Processing
A few of the major processing networks also process debit card transactions. Debit cards function similar to credit cards, but one major distinction is that debit card transactions are funded from a consumer’s bank account rather than a line of credit.
The majority of debit card transactions in the U.S. are handled over networks owned by Visa and Mastercard. Banks partner with Visa and Mastercard to make debit cards available for their customers.
Which Network Is the Best?
For many people, choosing a credit card based on the credit card issuer and the features of the individual card is better than choosing based on the credit card processing network. If most of your transactions will be made in the United States, you won’t run into much trouble using a credit card from any of the four major processing networks. However, if you plan to travel internationally, a Visa or Mastercard may be a better option, since they have more worldwide acceptance.