So the day when I was out with a friend of mine, and a lot of my friends will often ask me questions about money and finance, just because that’s what I study day in and day out. And I had somebody ask me a question that absolutely stumped me, and so I decided to find the answer to this question and put together in this post. But that question was, what is the difference between a Visa card and a MasterCard? And it’s literally a question I have never been asked before and something I’ve literally never thought of.
But as soon as someone asked me that question, I opened up my wallet and I noticed that my bank has a MasterCard, and I have friends of mine whose banks have Visa cards, and they were wondering if one is better than the other. So what the heck is the difference between a Visa card and a MasterCard, and is one better than the other? So the first thing we have to understand here is that there are two different groups or entities at play here. Number one, we have the credit card companies, which is Visa, MasterCard, and then you could also add American Express and Discover to that list.
And then number two, you have the banks, like Wells Fargo or Bank of America. Now these credit card companies like Visa and MasterCard are not the ones that are actually issuing branded cards. There’s no such thing as a Visa bank or a MasterCard bank. You’re gonna find that the Bank of America or Key Bank has a Visa or a MasterCard. And the reason behind that is because Visa and MasterCard are what we call these credit card companies or more specifically, payment technology companies.
Visacard vs Mastercard
So essentially banking is a processing network where Visa and MasterCard are basically handling the transactions between the bank and the merchant. This is not something that the banks themselves are handling. They are going through the payment network of either Visa or MasterCard or also Discover or American Express or some of these larger credit card companies. And what’s interesting here is how these companies actually make money, because we know how banks make money. Banks make money in one way by offering credit cards to people, and then they earn money from interest.
So when you load up that credit card and you’re making those interest payments, that money is going to the bank. But believe it or not, none of that money is being passed along to this credit card company, and Visa and MasterCard are actually making money in a completely different way. (screen whooshes) Visa and MasterCard are making money in merchant or business fees. they’re actually making money from the merchant. So every time you swipe your card at a store or a gas station, Visa and MasterCard, or whoever the credit card company is, is making a very small amount of money, a percentage of that transaction, being paid by that business owner.
So everything Visa and MasterCard are doing is between the merchant and the bank. It really has very little to do with you, because you’re dealing directly with the bank. So now that we understand what Visa and MasterCard are, compared to a traditional bank, the big question that you probably have is, is there a difference, and is one better than the other? And the answer to that is, there’s kind of a difference, but it’s not nearly a major difference to the point where you would look at it and say I wanna have a Visa card or I want to have a MasterCard.
And the reason behind that is because banks are the ones that set interest rates, they determine the fees, and they also determine the perks and rewards. That has nothing to do with the credit card companies Visa or MasterCard. So the majority of the things that differentiate one credit card from another are based on the banks and what the banks determine. So most people are not going to be deciding on a credit card based on the Visa or MasterCard label. It’s gonna be based on, do I want the Bank of America credit card or the Chase Bank credit card, based on the cashback and the different perks that bank is offering. (screen whooshes) But I went ahead and did some digging and I found this article on ValuePenguin that talks about MasterCard versus Visa.
Visa and MasterCard (rental car insurance)
I’ll link it up in the description below. And this basically shows that both Visa and MasterCard offer similar rental car insurance, so if you are ever renting a car, make sure you put that on a Visa or a MasterCard for some kind of insurance there on that vehicle. Both offer travel benefits in the higher tiers of the card because they have different tiers like a signature or a platinum level, based on the credit card. And both offer purchase protection and extended warranty in their higher tiers. So both Visa and MasterCard are offering basically the same exact perks to the cardholder. The only time you’re really going to see a difference between MasterCard and Visa is with occasional seasonal deals or one-time purchases with specific merchants. So maybe for example, MasterCard wants to give you 5% off your Old Navy purchase for example, if they wanted to make a deal with that merchant. That’s about the only time you’re going to see deals like that where one card might be better than the other. One example of this that I actually saw myself, something I was able to take advantage of, is MasterCard holders will get a VIP tour of the One World Observatory in New York City.