Many years ago, before I came to America, I was studying for the IELTS test. The IELTS is a test of English language skills that students coming from countries where English is not the official language have to go through if they want to study in an English-speaking country. For the listening portion of the test, exam-takers listen to an English conversation to answer questions related to the conversation. The conversation topics are sometimes specific to the country that administers the exam: either the UK or Australia.
One of the questions from the listening portion left me really confused at the time, so confused that I still remember it today. Actually the question was easy to answer; it was the content of the question that was not understandable to me. The conversation occurs in a store where the guest is asking whether the store accepts Discover or American Express, to which the waitress responds that they only accept Visa or Mastercard. I had never heard of these names before, and would not until years later when I actually set foot on a country where credit card use is the norm. My reaction at the time was something like: What? What’s American Express? A newspaper? OK, Mastercard is probably a card, but what about Visa? Is it the same sort of thing as a tourist visa?
OK, that was the high school me. But it recently struck me that most people here in America do not know the meaning of the logo at the lower right corner of their credit cards, beyond that if it says American Express or Discover it may not be accepted everywhere. There’s a lot more to it than that, and I would like to share with you what I found on this topic, in case you’re curious.
You may be aware, that for your card that has a Visa logo, you didn’t acquire your card through Visa. A bank gave the card to you. The same for Mastercard: Visa and Mastercard are payment processing networks; they do not issue credit cards. Discover and American Express (Amex) are different: they are both payment processing networks and credit issuers. However, having a Discover or Amex logo on your card merely implies that your card is processed through Discover or Amex.
So that’s it: Mastercard, Visa, Amex, and Discover are all payment processing networks. There are other payment processing networks such as JCP and Diner’s Club, but they are not nearly as common as the big 4. When the clerk swipes your card or when you enter your card information for an order on Amazon, it’s these 4 companies that process your payment, make sure that your card is legitimate, and transfer the money from your card to the merchant. They also subtract a percentage from the amount, and pay a large portion of that percentage to the credit issuer as commission fee and keep the rest of it to themselves.
As far as involvement in credit cards goes, Discover and Amex are a little different from Visa and Mastercard. Discover and American Express also issue credit cards. What’s confusing is that a card that is not issued by Discover can still be processed through the Discover payment network. For example, the Walmart Discover card: issued by GE Money (part of General Electrics), processed through Discover. The Bank of America Accelerated Rewards card is issued by BofA but processed through Amex. The distinction is important since many people mistake a Discover-processed card for a Discover-issued card and have false expectations of the service. As credit card issuers, Discover and Amex are very reputable with the best customer service and very competitive reward structures. Walmart Discover, however, is serviced by GE Money and doesn’t have the Discover advantages.
I wanted to make that distinction for another practical reason: if the card issuer gives you multiple processing network options for the same card, you should stay away from a Discover- or Amex-processed credit card: these processing networks are not as widely accepted as Visa or Mastercard. Discover and Amex make up for this huge disadvantage by having stellar customer service and perks for their own cards. Cards processed through their networks but not issued by the respective companies have the worst of both worlds: lower acceptance and inferior service.
For example, if you want a Walmart card, you should pick the Mastercard version over the Discover version: the only difference is the Discover version has lower acceptance elsewhere.
To recap what I’ve discussed:
The logo on the bottom right of card indicates the payment processing network, not the issuer. Visa and Mastercard are payment processing networks only, while Discover and Amex are both payment processing networks and credit issuers. Discover and Amex are fantastic as credit issuers. For non-Discover or Amex-issued cards, if given multiple options, you should stay away from Discover- or Amex-processed cards.
Does this sound confusing? Let me know if you think I should paraphrase the paragraph above to make it more comprehensible.
I’m just so glad I found the answer to the puzzle I encountered many years ago.
Have a great weekend,