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?
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The network of the credit card companies. They have an agreement with the banks and retailers who use them to accept them as payment, and it’s an international network. If a bank issued their own, it would only be able to be accepted by stores willing to accept it, and I doubt that there’d be many. Perhaps in some small town the local gas station and convenience store might, but it’s going to be useless across the state or country.
Similar to how store cards are only accepted at that store.
Even a large bank like BoFA or Citibank would spend tens, if not hundreds of millions of dollars replicating the systems that Visa/Mastercard has developed. On top of that each vendor that accepts Visa/MC signs an agreement with them and gets services, guarantees and a cost structure. The network of merchants, protection systems, verification, contracts takes DECADES to put in place.
Do you think that even a not-small bank would be willing to spend all this time, money etc just to get a most likely inferior and more costly system that would take many years to become commercially profitable?
I guess you know that EVERY SINGLE MERCHANT that accepts Visa/MC must have a contract with Visa/MC. And this is a worldwide network of merchants.
I’m not sure what your differentiation with american express is.
They’re the same thing as visa and mastercard, they’re another card company that’s just accepted in less places due to their higher fees.
Basically visa, mastercard, and american express designed the encryption systems and scanners their cards use, and work to get them standardised and accepted everywhere.
Banks use them because it’s easier than making the whole thing over again themselves.
No point reinventing the wheel.
If a bank tried to make their own system they’d have to convince everyone else to accept it, whereas if you just go “here’s a visa card” it’ll work everywhere with no effort
Let’s say you and your friends discover that you can make the most delicious cookies. They’re so good that they don’t even need to be fresh, even a few days old and they are still fantastic.
So you decide to sell them. And people all over the country want to order them.
Which means you need to buy and develop a huge network of delivery trucks and drivers and routes to deliver cookies to everyone across the country.
Or you could just use FedEx or UPS or USPS.
That’s what Visa and Mastercard are. They are the delivery networks that banks and merchants use to process the payments.
Visa and Mastercard act as middlemen between banks and businesses, providing a standardized system for issuing and accepting credit cards. They make it easier for banks and businesses to work together, benefiting everyone involved.
I work in the vehicle management department of the statistics bureau of my country.
We have this credit card in every car that can only be used in gas stations. And only in the gas stations that have a register with this specific credit card Company.
And we have a different card from a different Company for the maintenance of the vehicles. Frequently drivers Will Go to gas stations or car shops that doesnt work with this type of payments and It is an administrative mess the reimbursements because more often than not the driver ends paying from his/her own money at First Just because its way easier than the public agency recognize the expanse and pay the companies quickly.
Imagine this at world scale.
Consider that the financial world operates on trust centers. In order to purchase something with a card, the person accepting the card has to trust that it’s valid and has sufficient funds.
Visa, MasterCard, and AmEx have an international reputation for being trusted by merchants that when they say a person has money and it can be moved it’s true. Financial Institutions can also be confident that requests for money are valid.
This is ultimately so the bank can attract customers by giving access to funds on a national and international scale and the merchant can sell to people in their shop from anywhere in the world.
Extras:
There are actually regional networks or trust centers that banks also partner with. NYCE and SHAZAM are two examples in the US. Typically, if a card is multi-branded (can check the backside of the card for other networks) it will first check if both the merchant and customer are on the regional network the merchant is connected to. If so, they will move the money.
If not, they will check if the one not on that network is on a regional network they partner with. IE the merchant is a NYCE processor and the customer is on SHAZAM they may have a reciprocity agreement.
If there’s no reciprocity, they kick it up to MasterCard or Visa for processing.
This process kind of changes with the introduction of the chip, since part of the rules for chip cards is if there’s an option it’s up to the cardholder.
Source: worked as a dev in payment processing for the better part of a decade.
Both Visa and Mastercard were founded by banks. They spun them off as separate entities specifically so they don’t have to manage card processing themselves
VISA and Mastercard are international networks, which means the bank doesn’t have to do anything to ensure that you could pay with it in stores or withdraw money from an ATM. AmEx is a good example of this because lots of places in the world don’t accept AmEx cards, despite them being huge and spending lots of money on this. I recently booked a rental car in Portugal and was warned that AmEx won’t work (not that I planned to use it)
I remember a long time ago my mother had an account in a local bank that used their own cards. She could only withdraw money from a single ATM in town and couldn’t pay with this card anywhere. That’s how most banks would end up if they weren’t using VISA and Mastercard
There needs to be a network (as in companies and contracts, not Internet connection) connecting the terminals to the bank.
AmEx is a great example, actually: good luck paying with one in Europe. Most merchants accept Mastercard, Visa, and local systems, but not Amex.
A bank-custom solution would face the same problem just many times worse.
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