Visa vs. Mastercard

[Music] there are a lot of credit cards out there discovered American Express or worth mentioning it but I think most would agree that the two that truly stand out are Visa and MasterCard they are the two most widely accepted cards in the US and internationally they're the two biggest by almost any measure in I'd argue they shape the industry more than any of the others they're both fortune 500 companies with very strong brands I thought this was interesting to prove the strength of their brand visa recently did a study in 16 countries that found when consumers see that Visa logo they're three and a half times more likely to think a website is more secure now I think this is a common misconception so I should make it clear right away that these are not banks they do work with the banks but they both identify themselves as a technology company when you pay your credit card interest or late fees or whatever and that goes to your bank not Visa or MasterCard Visa and MasterCard make money from the bank or whoever's issuing the card they charge a fee that's dependent on how much the card is used and then they also do all this data processing behind the scenes type stuff that I won't be talking about anymore in this video there's some other stuff too but that's where most of the revenue comes from now let's take a look at these two how they've helped shape the industry how they've competed over the years and where they stand today the concepts behind these cards date back hundreds of years if not thousands of years in some cases but they can be hard to trace and not completely relevant to what we're talking about here as far as I'm concerned the first tangible examples of what resembles what we know today were in the early 1900's it was when companies would issue their own cards to their customers as stores were commonplace to see it like if it were the 1920s and our the owner of the general store in town I might offer a means for you to buy your items on credit the idea being that maybe you could purchase more and then you'd be more likely to return to my store as opposed to a competitor but these cards were always very small and scaled because they had no reach they were good at one store or one business so it was impossible for them to grow for decades that was the state of the industry until 1950 with the entered action of the Diners Club Card that was the first ever card to be accepted by multiple businesses on a large scale it was accepted mostly by entertainment providers and within its first year it had 20,000 holders than in 1951 Franklin National Bank introduced the first card that was actually provided by a bank and I think that the success of it made the other banks see the potential of the idea it wasn't long before all the banks across the country were providing their own version of a charge card and I should make that clear these were considered charge cards not credit cards the big difference being that the full balance had to be paid at the end of each month there wasn't any revolving balance no minimum payment said there wasn't any interest which could be good in some cases but I would consider it a limitation of the service the other big limitation was Geographic it was difficult to expand their reach because each bank would have to make a deal with every merchant in their area for them to accept the card and for those reasons the cards that each of these local banks issued were generally only accepted in their local areas and then in 1958 Bank of America changed the game when they combined three words into one an introduced BankAmericard this was what many people considered to be the first modern day credit card it had the revolving balance the minimum payments the interest and had reached all through California in 1965 they found an effective way to expand the reach beyond their state they would license their card to local banks across the country and have those banks do all the work in establishing it in their area let me explain a little further BankAmericard had a recognizable trusted name it was accepted in more places than any other card so it was attractive to customers if I were a bank in Memphis you could see how offering this card to my customers would be beneficial to me then it would be up to the Memphis bank to make the deals with the local merchants to have them accept the card and then issue the card to their customers the end result was hundreds of banks across the u.s. setting up their own little BankAmericard system in their community and paying the Bank of America for the right to do it service of the Citizens National Bank of Ironton meanwhile in 1966 when all of that was in motion there was an unrelated credit card forming in a much different way see this group of banks mostly in California but they stretched across America all of which were unassociated with BankAmericard came together to start a new card the newly formed company was called interbank card Association and the new card was called a master charge with a collection of already established banks backing it from the beginning it grew pretty fast so now we have master charge and BankAmericard the first two major credit cards they offered a very similar product but the organizations themselves were set up very differently one was centrally ran by a single Bank Bank of America and the other one was ran by a collection of banks there was no one else offering credit cards at this scale so it became almost impossible for any independent bank to compete with them as a result just about every other Bank was sort of forced into joining up with one of them in 1970 Bank of America got rid of BankAmericard and sold it to national BankAmericard Incorporated I realized that was an incredibly confusing sentence so let me explain it's actually pretty simple a group of those banks that were paying that licensing fee to Bank of America to issue the card well they came together to establish a company that would buy the card so now much like mastercharge they two were owned by a collection of banks for years later they bought the International side of the business from Bank of America as well and combined it all into one company and here's the part that I'm pretty sure you've been waiting for me to say this whole time two years later they changed the name of everything from BankAmericard to Visa but that name change was actually more meaningful than you may expect at the time they were pushing really hard to become an international brand but they had the word America right in the middle of their name they didn't like the idea of marketing it that way in other countries so instead they chose to use different names depending on the area I think they were using 20 different ones that one they actually specifically chose the name visa because it didn't connect them to a certain area and it was easy enough to pronounce no matter what language you spoke that name change allowed them to turn into a single uniform international brand and this is probably the other part you were expecting and two years later mastercharge became mastercard I want to say that this was an indirect result of visas name change because for visa it was probably the biggest part of a transformation plan at the time and it was really effective so it forced mastercharge into their own transformation plan to respond part of which was offering some new services and changing their name to reflect the fact that they were no longer just a charge card so that's how we get the two companies there's so much more to compare over the years but I'd summarize it by saying that one of them would introduce something or at least popularize it and the other one would follow I'm talking about things like traveler's checks that magnetic strip on the card ATMs debit cards the different card levels so now today we have two very similar companies if you're wondering if it's smarter for you to get a MasterCard or Visa card in most cases it really doesn't matter as I said it's the banks that control the rates in the terms and then the stuff that they do control is practically the same at this point now looking at the two as direct competitors the company that became Visa was first so they were obviously ahead for those first eight years but then the company that became MasterCard had a solid backing to start so they quickly pulled ahead and stayed there for more than a decade but then when Visa changed their name and made that aggressive international push they pulled ahead somewhere around 1980 and that's about it it hasn't changed again since Visa has been the leader of the two for decades now this is worth mentioning though in the late 1990s MasterCard gained a little ground from their successful marketing campaign do you remember this one they would list the monetary price of a bunch of items people were using and then in the final one they'd list usually more of an experience and say that it was priceless and then the voice over would come on and say there are some things money can't buy for everything else there's MasterCard it was really effective I think because it showed money can't buy everything but it can sort of push you in that direction I don't know if I'm explaining that right but at the very least it exposed a perceived soft side of the company it just made them look like they cared in 2006 MasterCard went on the stock market with a massive initial public offering and then two years later Visa did the same thing but even bigger they've both been dealing with antitrust lawsuits from just about every angle you can imagine in almost any aspect I can't find many major differences between them other than their size I'll make the general statement and say visa controls almost half the market whereas MasterCard controls somewhere between a fourth and a third of it here's some direct comparisons their revenue is considerably larger for Visa as we would expect but they're both growing at a similar pace and then their net income shows something somewhat similar all right here comes some of the biggest numbers that you will ever see on this channel for their total transactions it was 188 billion compared to 103 billion the amount of those billions of transactions totals to eleven point four trillion dollars for Visa compared to five point nine trillion for MasterCard for the number of cards in circulation worldwide its 3.3 billion compared to two billion I also want to point out that the combined 5.3 billion cards represents about eighty-five percent of the markets which means if you have a card from your bank there is an eighty five percent chance at the logo says either Visa or MasterCard here's my summary the credit card industry has grown tremendously over the past few decades and the credit card networks have grown proportionally with it just think of it this way this is a concept that hardly existed before the 1950s and how the average American has thousands of dollars in credit card debt but there hasn't been much change between the network's if one of them makes a big change the other one tends to follow and in the end it they are both advancing but the distance between them never changes much so now just like 30 or 40 years ago we have visa with a commanding lead MasterCard following behind quite a bit in second place and then no one else with a realistic chance of catching up to either one of them anytime soon let me know in the comments do you agree with that statement or are there any other companies contributing more to the market than I'm giving them credit for am i under estimating Discover card or something like that also what's your perception as far as the difference between them because from everything I've seen from the customer's end I can't even identify a difference significant enough worth mentioning do you even care what the logo says on your credit card or debit card or if you do be careful not to reveal too much personal information but I'd be curious to hear why from your perspective what is the difference between Visa and MasterCard I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 739,738

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Id: qJg4ovTgI-0

Length: 11min 47sec (707 seconds)

Published: Wed Jun 10 2020