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5 Aug 2011

Visa and MasterCard: What's the Difference?

Visa, MasterCard, American Express and Discover: What's the Difference?By: Angie Picardo

Everyday, we’re bombarded with thousands of advertisements, often without even knowing what they’re for. Turn on the TV or flip through a magazine, and you’ll see ads for alcohol, clothing, accessories, and of course, credit cards.

The two major competitors, Visa and MasterCard, have successfully implanted their names in our minds (you can probably say with certainty what card “more people go with,” or which one’s best “for everything else”), but what’s the real difference between the two?

When you’re choosing a credit card, you have the option of choosing between one of the four major card networks: Visa and MasterCard, of course, along with the arguably less prolific American Express and Discover.  Since acceptance of the last two is fairly limited (4.5 million retailers accept AmEx, compared to 7 million for Discover and 8 million for the big two), MasterCard and Visa are at the head of the pack. But before you make your decision about which card is right for you, it’s important to understand the difference between what these two companies offer. 

All that Attention, Just for the Middleman

Contrary to popular belief, MasterCard and Visa don’t actually issue credit cards. They don’t deal with the details of your credit card like interest rateslate fees or compensating you for fraud. Visa and MasterCard are payment networks that connect a payment terminal (like a cash register) to the credit card department at your bank. So, if you swipe your Citibank MasterCard at your favorite clothing store or grocery store, MasterCard is responsible for checking with Citibank to make sure you have enough money in your account. Banks work with a third party network so they don’t need to deal with every merchant individually.

Since you now know that Visa and MasterCard have nothing to do with the specs of your credit card (interest, late fees, etc.), you may be wondering why choosing between the two even matters. The card networks are responsible for most of the non-reward “perks,” as compared with the credit card rewards that are determined by banks. Some benefits, such as fraud protection, are standard practices, but bonuses, like rental car insurance, may differ. There can even be variations within a single brand. For example, Visa Signature’s benefits are far more extensive than the Visa Classic’s. As a general rule, the benefits go to the premium cards: if you’ve got a credit card for bad credit, sorry - you’ll have so-so benefits no matter what network you have.

Spot the Difference

The main differences are mostly found in purchase and return protection, rental car protection, premium travel insurance, and concierge services. Discover doesn’t have purchase and return protection, concierge services or loss of use coverage on rental cars, and offers the worst perks among the four networks. What’s more, it’s not accepted everywhere that Visa and MasterCard are.

American Express has the best perks, but remember that they cater to the high-end crowd with cards like the Platinum. Visa and MasterCard toggle between second and third, but Visa usually comes out ahead because its benefits are available on a wider range of cards. American Express takes the overall lead because it has the most extensive insurance coverage on return/purchase protection and extends the offers to every one of their cards. Also, AmEx’s premium return protection trumps all other competitors and is available even for cards from other issuers. Overall, American Express offers the most flexibility and availability in terms of protections, and is steadily being accepted by more and more merchants, nationwide.

Choosing between payment networks may not have been a priority for you, but now that you’re an expert on the ins and outs of the process, you can make sure you get the most out of your credit card, perks and protections galore. 

Angie Picardo is a staff writer for NerdWallet, a credit card website dedicated to helping consumers make the most of their cash back credit cards.
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