What’s the point of Visa and Mastercard if it’s always from a bank? AmEx cards are produced and processed by them only and not any other processor, so why can’t banks make credit cards without Visa or Mastercard, or vice-versa?

Question

What’s the point of Visa and Mastercard if it’s always from a bank? AmEx cards are produced and processed by them only and not any other processor, so why can’t banks make credit cards without Visa or Mastercard, or vice-versa?

In: 942

Answer 1

Basically, Visa and Mastercard are credit card Networks (aka I.T. experts)

Banks are credit card issuers (aka lenders)

Bank CC issuers charge interest, decide who is eligible for a card (line of credit loan) and whether or not to approve the purchases on that credit (i.e. is this a legit purchase, does the cardholder have enough credit left to use, etc), and some other security tasks. They bill you for what you owe (collections). Visa and Mastercard don’t do any of that.

All of the above are the kinds of things banks normally do regarding ANY bank transaction. The banks do much the same when you cash a check, or let you write a check. Same stuff when you take out a loan on a car or a house.

Banks don’t want to be in the business of building or maintaining payment networks. Any money they tie up in such infrastructure is money they can’t loan out for a profit, which is the bank’s main business.

So banks hire a Credit Card Network company to do all that for them. Visa and Mastercard get a piece of the transaction as a fee.

Visa and Mastercard likewise don’t want to take on the credit risks of loaning people money, getting them to pay if they default, or deciding who is a good or bad risk for said credit. Banks are better at that.

In this way, the Banks & the Networks (Visa & Mastercard) stick to what they do best.

American Express and Discover are the exceptions. They do both the banking and they own and run the CC networks. Why? They feel they can profit by doing both.