Visa vs. Mastercard: An Overview
There are four businesses that control the majority of the market in the electronic payments sector. The vast majority of credit card transactions throughout the globe are processed by Visa, Mastercard, American Express, and Discover respectively.
Visa and Mastercard both provide their customers with separate offers due to the fact that neither firm is engaged in the process of issuing cards or giving credit. This indicates that all Visa and Mastercard payment cards are issued under a co-branded connection of some kind.
Even though none of these organizations offers credit or issued cards, they have joined forces to provide customers with the widest possible selection of financial products, including credit, debit, and prepaid card possibilities.
Both Visa and Mastercard are recognized as the two most widely used payment processing networks worldwide.
Visa and Mastercard do not issue cards to the general public directly as Discover and American Express do; rather, they do it via the financial institutions that are members of their respective networks.
Credit and debit cards with Visa and Mastercard are issued by member banks and credit unions directly to their consumers. In many instances, these institutions also offer these cards via co-branded credit card agreements with airlines, hotels, and big stores.
In the poll that was conducted by the Federal Reserve in 2020 for its Diary of Consumer Payment Choice, it was found that 42% of Americans preferred to pay their bills using a debit card, while 29% used a credit card. This means that 71% of Americans have at least one credit card or debit card.
There are a lot of individuals that have more than one of these because they want to make the most of all of the incentives, cash back chances, and promotional bonuses that the issuers provide.
Credit cards are often in the news, and with outstanding revolving credit amounts reaching approximately one trillion dollars as of the end of the first quarter of 2021, it is easy to see why.
Consumers are very familiar with debit cards. According to the 2019 Federal Reserve Payments Study, debit cards, along with credit cards and other forms of non-cash payments, accounted for approximately 174.2 billion payment transactions in 2018, representing $97.04 trillion in value. This figure was derived from the use of non-cash payment methods in general (the most recent available).
The expansion of the financial technology market is leading to an increase in the number of prepaid card offerings, which is projected to generate approximately $294.44 billion in annual volume in 2020. This represents a growth of 38.1% compared to 2019, and it is likely driven by the economic crisis that will occur in 2020.
Acquiring Knowledge about Visa and Mastercard
The only network payment processors active in all three segments of the payments sector are Visa and Mastercard. These two organizations have a distinct competitive advantage due to the fact that they are network processors alone; nonetheless, their business models are distinct.
Both Visa and Mastercard are listed on public stock exchanges. Visa (trading symbol V) has a market capitalization of $497.5 billion, while Mastercard (trading symbol MA) follows closely behind with $359.8 billion in market capitalization (market caps as of May 18, 2021).
Both businesses have a substantial selection of co-branded products and services due to the fact that neither lends credit or issues cards via a banking division.
Both firms’ approaches to doing business are remarkably comparable to one another. Both Visa and Mastercard do not issue cards to the general public directly; rather, they do it via partner member financial institutions like banks and credit unions. After then, the member financial institution will issue cards for people and companies, either directly or in conjunction with other brands, such as airlines, hotels, or retail establishments.
Defining the Boundaries of the Agreement
The terms and conditions of the payment card, including any fees, incentives, and other features, are determined by the financial institution that issues the card. (Most retailers have relationships with other organizations in the financial sector.) When it comes to credit cards, the issuing bank is the one who is responsible for underwriting the card, establishing the interest rate, and developing the rewards program in its entirety.
Card issuers may also provide additional benefits, such as protection against identity theft and fraud, insurance coverage for automobile rentals, and discounts on business purchases. Visa and Mastercard compete with one another for the co-branded partnership and have a hand in the creation of card conditions. Variations in interest rates, credit limits, rewards programs, and bonuses are determined by the issuing financial institution.
In general, the card payment business is a complicated one since it involves many different parties, including merchants, issuer banking, network processing, merchant acquiring banks, and cardholders. Network processors, and notably Mastercard and Visa, have complete autonomy over the manner in which they organize and present their costs to customers. One of the most significant distinctions between the world’s two major network processors may be found in their organization and reporting.
Visa Card Overview
Visa had a payments volume of $8.8 trillion in 2020, which led to the company generating net revenue of $21.8 billion. Credit, debit, and prepaid cards, as well as business solutions and international ATM services, are the foundational components of Visa’s product lineup. The following constitutes a portion of the company’s reportable business segments:
- $9.8 billion will be spent on services in 2020.
- Data Processing will bring in $11.0 billion by the year 2020.
- Transactions Conducted Overseas are projected to be Worth $6.3 billion in the Year 2020.
- Other (estimated to total $1.4 billion in 2020)
Both Visa and Mastercard get the bulk of their income through service and data processing fees; however, these fees are characterized and structured differently by the two firms. Visa and Mastercard both derive the majority of their revenue. Service fees are assessed by the card issuer and are determined by the number of transactions made using the card.
Data processing fees are another kind of fee that is typically levied to the issuer, who then recoups these costs by charging merchants for each individual transaction that they process. The expenses of delivering transactional information that is conveyed over the network are often covered by data processing fees, which are typically extremely modest and set rates that are payable on a per-transaction basis.
In general, Visa is well-known for providing customers with the option of choosing between three card levels: regular, signature, and limitless. These classifications include issuer-specific requirements that are standardized.
In the year 2020, Mastercard’s overall net revenue was $15.3 billion, and the company processed $6.3 trillion worth of payment transactions.
The four main types of goods that Mastercard offers are credit cards for consumers, debit cards for consumers, prepaid cards, and commercial products. Mastercard only has one reportable business sector, which is referred to as Payment Solutions. This category is then segmented further by geography throughout the United States and in other nations.
Similar to Visa, the bulk of Mastercard’s income comes from fees associated with the processing of both service and data transactions. On the other hand, it presents the costs in a different light. Mastercard’s transaction fees are determined by haggling over a percentage of the total number of dollars transacted worldwide. Switching costs, also known as data processing fees, are nominal charge that is levied on the issuer at a predetermined rate for each transaction.
It is well knowledge that Mastercard provides three degrees of card status: standard, global, and world elite.