When Diner’s Club introduced its charge card in 1950, the idea that shoppers could use the same piece of plastic at multiple retailers was a novel concept. Times have certainly changed, with consumers now able to choose among hundreds of different credit cards. See Credit Cards: A Brief History.

While the number of options is enviable, it’s also harder than ever to find the card that best meets your needs. In order to make the right choice, it helps to understand the basics of the four major card networks and what they have to offer.

How Cards Work

If you have a typical credit card in your wallet, you’ll notice it has two corporate logos on the front. The top-right logo corresponds to the bank that issued the card. This issuing bank is in effect lending you the money to make a purchase, whether online or in person. It sends funds to the merchant’s bank within a couple days of your purchase, so it’s betting that you’ll pay your balance at the end of the month – or at least make your minimum payment.

The insignia on the bottom-right of the card – for example, Visa or MasterCard – refers to the card network. Think of this network as the link between your lender (the issuing bank) and the merchant’s financial institution (the acquiring bank). The role of the network owner is to process the transaction so the appropriate funds move to and from the right accounts.

If you have an American Express or Discover card, on the other hand, it will usually have just one logo. That’s because these companies not only manage the network, but also perform the roles of issuing bank and acquiring bank. This approach is sometimes referred to as a “closed-loop” model.

The Industry Leaders

You’ve probably observed that certain retailers and restaurants accept some types of cards and not others. If being able to use your card virtually anywhere is a top priority, a Visa or MasterCard is often the way to go. According to CardHub.com, each is recognized at more than 8 million establishments in the U.S., more than any of the other networks.

There’s a good reason why more businesses accept Visa and MasterCard than other cards – it usually costs them less money to do so. Every time a customer swipes a card, the store has to pay something called a “merchant discount” to the acquiring bank or processor. Typically, this fee – most of which gets passed along to the card issuer – represents 1.8% to 2.5% of the transaction amount. However, American Express charges slightly more than Visa and MasterCard (Discover doesn’t report its average merchant discount rate). Therefore, on a dollar-for-dollar basis, it’s more profitable when customers use one of these two dominant cards.  

All sorts of banks issue cards under the Visa and MasterCard name, which means there’s no lack of choice in terms of card features. Some offer generous rewards programs that give you points, cash back or airline miles. Learn more by clicking on Rewards Credit Cards.

Others are intended for specific customer segments, such as those with limited or damaged credit. See Credit Cards For People With Bad Credit.

So is there a difference between these two industry behemoths? In terms of acceptance, not really. However, both Visa and MasterCard offer additional benefits – including fraud protection, car rental insurance and product return privileges – that do differ. If these attributes are high on your list, it’s worth visiting their respective websites and comparing the two.

The ‘Cash Back’ Innovator

If Visa and MasterCard represent somewhat “vanilla” credit cards, Discover and American Express have a slightly stronger brand identity. Each caters to a clearly defined demographic and places a strong emphasis on customer service. According to a 2014 J.D. Power survey, Discover and American Express shared the award for highest customer satisfaction. Their drawback is the smaller network of merchants that accept their card.

Source: CardHub.com 

Discover, which has the third-largest network, succeeded by chasing after frugal shoppers. It is still largely known for the cash back concept that it helped pioneer in the 1980s. The company initially offered a simple rewards structure that reimbursed customers for 1% of the value of their purchases. Today, it offers a more complex tier system that pays up to 5% for certain types of expenditures and up to 20% for doing business with select online retailers.

Discover now has to compete with Visa and MasterCard products that have entered the “cash back” game – CapitalOne’s QuickSilver card, for example, pays 1.5% for every purchase. However,Discover charges no annual fee, unlike rewards programs offered by some other networks.

In contrast to Discover, American Express has staked a claim on more affluent consumers. In addition to offering points based on the amount you spend, it provides a slew of cardholder benefits, such as preferred seating at live events and extended warranties. Some of its perks, like baggage insurance and an international concierge hotline, are specifically aimed at frequent travelers. Its reputation for superb customer service plays well in this demographic.

Targeting Big Spenders

Customers do have to pay for those privileges. The American Express Green Card, for instance, comes with a $95 annual fee (which is waived for the first year); its Platinum Card charges a hefty $450 fee each year in exchange for greater travel benefits. If you journey abroad and pay your full card balance on a regular basis, though, the advantages could very well outweigh the costs.

Besides its higher annual fees, the major negative to American Express is that fewer merchants accept it, even when compared to Discover. This becomes a smaller factor for those who also carry a Visa or MasterCard as backup.

The Bottom Line

The four major credit card networks each have distinct benefits and drawbacks. Start your search by determining which features matter most to you. That way, you’ll end up with a card that fits your unique needs. See Signs You Need To Look For A Better Credit Card.