INTRODUCTION
The electronic payments industry is dominated by four companies - Visa, MasterCard, American Express, and Discover are responsible for handling the majority of the world’s card payments. Visa and MasterCard present unique offerings since neither company is involved with extending credit or issuing any cards. This means that all Visa and MasterCard payment cards are issued through some type of co-branded relationship. While the two companies don’t extend or issue any cards, they do partner to offer the broadest array of products encompassing credit, debit, and prepaid card options.
Most People today have at least one debit and credit card. Many people have a number of them, seeking to take advantage of all the rewards, cash-back opportunities, and promotional benefits that issuers have to offer.
BUSINESS MODEL OF VISA AND MASTERCARD
Credit cards often dominate the headlines, with approximately $1 trillion in outstanding revolving credit balances as of Q4 2019. Consumers are easily familiar with debit cards, which along with credit cards and other forms of non-cash payments generate around $174.2 billion in transaction volume representing $97.04 trillion in value annually. As the financial technology market evolves, more and more prepaid card offerings are also being brought to market, generating around $200 billion in annual volume.
Visa and MasterCard are the only network payment processors that are involved in all three areas of the payments market. Working exclusively as network processors, these two companies have a unique edge but operate differently.
Visa and MasterCard are both publicly traded. Visa (trading symbol V) commands a $365 billion market capitalization while MasterCard (trading symbol MA) follows closely behind at $293 billion. Since neither company extends credit or issues cards through a banking division, both have a broad portfolio of co-branded offerings.
The business models of both companies are very similar. Visa and MasterCard do not issue cards directly to the public but rather through partner member financial institutions like banks and credit unions. The member financial institution then issue cards payment cards for individuals and businesses, either directly or in partnership with airline, hotel or retail brands.
VISA
In 2019, Visa generated $23 billion in total revenue with payments volume of $8.8 trillion. Visa’s core products include: credit, debit, and prepaid cards as well as business solutions and global ATM services. The company’s reportable business segments include the following:
- Service
- Data Processing
- International Transactions
- Other
Both Visa and MasterCard earn the majority of their revenue from service and data processing fees but the two companies characterize these fees differently and also have their own fee structures. Service fees are charged to the issuer and are based on card volume.
Data processing fees are generally also charged to the issuer who in turn retrieves these fees by charging merchants for each individual transaction. Data processing fees are typically very small, fixed fees, charged on a per-transaction basis that cover the costs of providing transnational information communicated on the network.
In general, Visa is known for offering three card levels: base, signature, and infinite. These categories come with standardized provisions for issuers.
MasterCard
In 2019, MasterCard generated total revenue of $16.9 billion, with a payment volume of $6.5 trillion.
MasterCard’s core products include consumer credit, consumer debit, prepaid cards, and a commercial product business. MasterCard has one reportable business segment known as Payment Solutions which is broken out by geographies across U.S. and other.
Like Visa, MasterCard earns the majority of its revenue from service and data processing fees. However, it characterizes the fees differently. Service fees for MasterCard are negotiated and calculated as a percentage of global dollar volume. Data processing fees are known as switching fees. Switching fees are a small, fixed cost per transaction, charged to the issuer.
MasterCard is known for offering three card levels: base, world, and world elite.
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