This article has been reviewed by Sumeet Sinha, MBA (Emory University Goizueta Business School). Should you have any inquiries, please do not hesitate to contact at firstname.lastname@example.org.
Earlier if you wanted to buy something, then you had to go out to the market, carry sufficient cash and on top of all, worry about theft or loss. But now you don’t have to worry about all this. The Internet has made a lot of things more convenient. It also brought an age of plastic money. Cash has been replaced with plastic money i.e Visa Card, Mastercard, and American Express. This plastic money has brought a revolution in the banking business, and normal business, and changed the spending habits of common people as well.
Difference Between Visa, MasterCard, and American Express (Jump To Section)
In today’s world, many people use e-money for making payments, shopping at malls, or online shopping as it is one of the easiest modes of transaction. Paying with a card is the most convenient method of transaction. Wherever you get the swipe machine it is easy to swipe your card rather than giving cash. In the starting days of these cards, people were a little apprehensive to use them, they were worried that their pin could be copied and they could lose their savings. They were also afraid of any fraud or cheating. But nowadays you will see every single person using cards such as Visa, Mastercard, and American Express cards.
Visa, Mastercard, and American Express are the cards used for digital transactions between two parties. When you buy a product from a shopping mall, store, or any other vendor and use Visa, MasterCard, and American Express card for payment it plays a role of a middleman to make payment from bank to vendor. These cards are used for electronic payments as well as online shopping. These cards manage the greater part of the world’s card payments as they cover major payment networks.
Visa and Mastercard are one of the most trustworthy card companies in the world but these companies don’t directly issue you cards they issue you their cards through banks. But American Express directly issues you their cards. These cards offer you credit, debit, and prepaid payment options. They may also charge annual membership fees from their customers, give them credit facilities, and collect interest amounts on any outstanding unpaid balance (by due date) to make money.
These cards are called plastic money as they have replaced cash/money from your pockets and wallet. This is the safest and easiest mode of transaction. In case of theft, large amounts of transactions cannot be made immediately until and unless the thief has technical skills / professional computer knowledge to hack or crack the passcode.
Last but not the least, for making large payments security pin is required (in some countries) which is shared on your mobile phone or e-mail Id and if something fishy is detected, the payment is not processed. Some banks also use Artificial Intelligence for fraud detection.
You can block your card if lost or felt in not safe hands. This will minimize the risk of fraud and cheating. In this article, we will learn how Visa, MasterCard, and American Express make money.
- What Are The Different Methods of Payment?
- What is a Credit Score?
- What Are The Benefits of Plastic Money?
- Cons of Plastic Money
- How Do Credit Card Companies Work?
- How Much Does a Credit Card Company Earn Per User?
- Difference Between Visa, MasterCard, and American Express
- American Express Credit Cards
- Visa and Mastercard
What Are The Different Methods of Payment?
● Credit card:
This is a short-term credit option given by a bank to the user. If you fail to repay the amount due by the due date, then you have to pay penalties and high interest on it.
● Debit card:
This is an option given by the bank for withdrawal of cash from an ATM and to check your account balance. Debit cards can also be used for transactions at shops and supermarkets.
This is money in the form of coins and notes and not plastic cards, cheques, etc. It is a commonly used method of making transactions while shopping etc.
It is a paper that instructs the bank to pay the given amount from the person’s account to the person in whose name the cheque is made. It is an authenticated method of making payments. It is a legally acceptable mode.
What is a Credit Score?
The credit score is a score given by credit rating agencies to you. It helps banks determine the credit worthiness of a person for taking credit from the bank based on different things – such as credit history which includes how many debts a person took, repayment history, and other factors. If the credit score is higher then it shows good credit history. The credit score is given between a number 300-850. A good credit score lies between 670 to 739. Poor credit score lies between 500-600. If you have a high credit score then you get favourable interest rates on credit.
If you want to enhance your credit score, then you can try these things.
● You must repay all the debts and credit card payments on time.
● You must seek an increase in your credit limit, based on your income level.
● You should not have high utilization on your credit. For example, if the total credit you’re approved for is $50,000, try and keep the credit usage below 20%, or even below 10% for better results.
● You should try not to close your old credit cards – the longer they remain active, the longer the history.
What Are The Benefits of Plastic Money?
Here are some benefits why plastic money is good to have rather than cash:
● Plastic money is easy and safe to carry as it is not heavy and has less risk of theft and loss.
● These cards help us to live our life cashlessly as you can go anywhere in the world without cash and these cards are accepted all over the world.
● This reduces the risk of theft as in case of theft large amounts of transactions cannot be made immediately until and unless the thief has technical skills and complete knowledge of hacking and cracking the passcode. Hacking a card’s PIN is difficult as a result you will have no impact on your funds. Only if you have not selected a very easy password such as your name or your date of birth etc.
● In plastic money, there is a card known as a credit card which gives you financial assistance and freedom as they allow a person to make transactions even if they don’t have funds or in case your salary has not been credited yet. This card is very beneficial especially when you don’t have money. With this, you don’t have to borrow money from your friends/relatives and face embarrassment. You can make your transactions with credit cards and later you can pay the money within the stipulated time duration (by the payment due date) or in instalments which helps you survive in your crucial days.
● These cards are very easy to use and help to make online payments, money transfers, and other transactions. You can make payments from any location with this mode of payment.
● You can get many deals, offers, and discounts by using these cards. These help you to get many discounts and help you save more and get cashback on payments. With the help of these cards, you can expand your purchasing power
● When you travel, sometimes it is very expensive without plastic money. These cards provide you with unbelievable deals on travel bookings, hotel books, and arranging trips.
● You can pay your college fee, school fees, restaurant bills, and cab fares using these cards very easily and quickly.
● You can receive money from your near and dears in the days of requirement.
● You can send money to your family and friends as per their requirements.
● You can effectively control spending with the help of these cards by keeping them safe.
● If you have a business credit card then it provides you certain other access to some financial services and products. A business credit card is highly effective in improving business. Many business credit card companies offer you the latest tracking tools as well as innovative business tools.
Cons of Plastic Money
● Plastic money has many benefits but sometimes plastic money is not accepted in small shops.
● In the case of theft and loss, you have to block it as soon as possible and if you are not aware of your card theft then the card can be put to the wrong use. It can lead to a loss of your money. This may lead to a great loss of your savings and leads to cheating and fraud. Some cards come with a $0 liability protection, but not all cards offer that benefit to card members.
● If the card is not used safely then its magnetic strip can be damaged which will make it useless and can lead you to face some problems. So, you should use your card safely and with proper care.
● Using cards build a spending habit in you which may not be good as this can make you spend more money than you should. Moreover, cases have also been observed where kids take their parents’ cards without asking and use them in their way which can be very dangerous for your savings and funds.
● Overuse of credit cards can put you in a debt trap. You have to remember that you have to pay all this credit in full and if you fail to do so you will be pushed into a debt cycle from which it is very difficult to recover yourself. High interests and penalties are charged on late payments which sometimes can become very difficult for you to pay off. Read How To Use Credit Cards Responsibly.
● Relying on too much credit means that you are not financially stable.
● Some people think that they give you deals and discounts to save your money but it is not so because they want to make you spend more and fall into the trap and take huge loans even when they are not required.
● Some people prefer cash only and do not want to use cards or net banking as they do not believe in such benefits provided by the banks.
● Many people are not aware of how to use these cards and can fall prey to phishing and scammers.
How Do Credit Card Companies Work?
The credit card ecosystem includes two entities – issuers and networks.
Issuers are the entities that issue credit cards to the people, such as banks, for example, Chase, Bank of America, Citi, etc.
Networks are the entities that are responsible for the operation of cards. The most known networks are Visa, Mastercard, and American Express.
American Express is both a network and card issuer.
How Much Does a Credit Card Company Earn Per User?
You will be surprised to know that $180 is made by each active account, on average, per year through credit card charges, interest charges, annual fee charges, and many more.
Difference Between Visa, MasterCard, and American Express
The most popular payment networking brands right now are Visa, MasterCard, and American Express. People get confused that which one they should choose. Here is the differentiation between these three payment networks that you can choose as per your choice and need :
Master Card is supported in 200 countries. Master Card doesn’t issue cards directly. Banks such as Chase Bank, Bank of America, and many more provide Mastercard cards to their customers.
Visa is supported in 210 countries. They also do not provide cards directly. Banks such as Chase, Citi, United, Capital One, and Suntrust provide Visa cards to their customers.
American Express does issue its own cards directly to customers. American Express card is supported in 130 countries. Along with their own cards such as the American Express Platinum, AmEx Gold, etc., their cards are co-branded with hotel and airline partners such as Marriot, Delta, and Hilton.
American Express Credit Cards
How to Apply for an American Express Credit Card?
● You can apply for an American Express credit card through online mode.
● You have to fill out a form, with your personal information.
● Then you have to mention your document details.
● Then details of your occupation and job will be asked.
● The address is very important to point out, if your address will be in the availability zone then you will get eligible for the card.
● You will have to give the salary and earnings detail.
● After filling and submitting the form your eligibility will be checked and if you will be eligible then you can receive your American Express credit card at your mentioned postal address.
● You can spend as per the limit allowed on your card and should make the payments on time. Otherwise, you will have to pay high interest, charges and may face legal formalities if you fail to pay off the balance due.
● You can withdraw cash from the card too and repay them accordingly which can provide a financial cushion for you. However, withdrawing cash comes at a very high cost, so keep that as a last option.
How to Make a Payment on an American Express Card?
● First, You have to create an online account and/or download the American Express app.
● Then you have to click on the make payment option provided in the app.
● Then you have to select the pay with bank transfer option.
● Your account balance will be updated automatically.
● You can also direct debit the card by filling out the mandate form.
● An American Express card has fifteen digit number as the reference.
Benefits of using American Express cards:
● You can instantly get financial assistance if you qualify for it.
● Using it is very convenient.
● It provides you with a financial cushion.
● You can keep a record of your transactions.
● You may also get reward points for using it frequently.
● You can redeem these points easily.
How Does American Express Make Money?
American Express Company is working for more than 60 years. It started its services in the 1950s and now has become one of the best credit card companies internationally. It is the biggest credit card company in the world offering free offers to its customers. It is earning revenue for its company via annual membership charges, interest charges, and many more. The main reason why people prefer American Express credit cards is privacy and customer service. In 2020, they made a net income of $3.1billion.
American Express offers cards that charge 0, low, and high fees on annual membership charges – so users have a wide variety to choose from. AmEx also is known for giving out special deals, offers, and discounts. It helps in increasing your purchasing power.
American Express makes money via
● Charging interest on the balance amount including principal and interest amount.
● Conversion fees (in case of cards being used internationally).
● Annual membership charges (may be fixed and may vary from customer to customer).
● Delay/late fees are charged.
● Charging fees from vendors/merchants on the transactions.
Visa and Mastercard
How to make a transaction using Visa and Master Card?
● You can swipe it in ATM Machine as well (or insert a chip on a chip card) to withdraw cash but this is not advisable.
● After doing shopping at some shopping mall, departmental store, or shopping complex, you can swipe your card in the swipe machine, put the passcode (in some countries) in it and your payment will be processed if you have sufficient funds in your account.
● While buying groceries, other products, electronic items or online shopping you can use Visa or Master card and make the payment. You will have to enter all digits of your card, expiry month and year, and CVV (three-digit number mentioned on the backside of the card), and then your payment will be processed.
● It is the easiest, safest, and most secure method of making payments.
● Afterward, you can check your e-statement or check the paper statement from the bank.
● Likewise, you can send money and receive money from your near and dear ones.
● You can also enjoy offers on the shopping/travel that are offered to you from time to time.
How do Visa and MasterCard Make Money?
When you think about a payment network then the networks that come to your mind are MasterCard and Visa. These are the most popular networks in the world. These networks do partnerships with banks to offer products like credit, debit, and prepaid card options. These cards almost work like ATM cards.
They make money through different methods. These companies collect fees from their customers. They make revenue from different sources such as fees, interest charges, etc. many times when the customer uses the card limit and fail to pay off the bill in the prescribed time limit and interest is also charged on the amount borrowed. Other than these amounts many other fees are charged such as annual charges, late fees, and others.
These companies charge minimal amounts from the vendors who accept these cards. These amounts also add to the revenue. Moreover, assessment fees are charged on visas and MasterCard. The assessment fee is a fee charged for processing a vendor’s credit card transactions.
What an amazing thing plastic money is! It is very useful. In the corona period due to precautions, people avoid touching several things, including cash notes. So people used plastic money for transactions as it is a safe mode of transaction. People nowadays find it convenient to pay with cards as it takes only a single click to pay and they have become familiar with them.
Plastic money works through payment networks and the most known payment networks are Visa, Mastercard, and American Express. They manage the payment transaction from a person to the vendor. In this article, we tried to give you a holistic picture of how payment networks i.e. Visa, Master Card, and American Express make money, the pros and cons of plastic money, the difference between payment networks, credit scores, and some more points. With the help of these cards, not only spending has become more convenient but you can manage your finances better as well.
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