Let’s examine a bit of history about the four major credit card networks in America – Visa, MasterCard, American Express, and Discover – and how much of the market they control.
It’s hard to imagine currently, but there was a time where credit cards as we know them didn’t exist – and it really wasn’t all that long ago. In fact, as recently as the 1950s, our concept of a general charge/credit card that could be used at a wide variety of establishments was seen as more of a pie-in-the-sky pipe dream versus a tangible reality.
Things obviously changed fairly quickly, and with the advent and eventual widespread adoption of Diner’s Club, Master Charge (which would eventually become MasterCard), and BankAmericard (which would eventually become Visa), the concept of credit card usage became a common practice in America.
We’ll save the history of how the process of credit card acceptance came to fruition (perhaps a future blog article), but for now, let’s take a quick look at how the main four players in the credit card arena – Visa, MasterCard, American Express, and Discover – came to grow so large to dominate the credit market.
Visa is the best choice out of the four to start with, as it is not only the biggest, but also the first out of this group to gain widespread acceptance. It started from humble beginnings, issued from Bank of America in Fresno, California. Initially branded very close to its lending agency, the BankAmericard had a marketing strategy that seems insane by today’s standards. Bank of America sent out 60,000 cards, unsolicited, to potential users in Fresno. Not the applications we commonly get today, mind you – no, these were actual, live, usable cards. It’s hard to imagine, but the 1950s were a much simpler time.
Initially planning on just being a general charge card for the state of California, the program took off and by the 1960s, the program extended into other banks around the country. In 1976, the name of the card was changed to Visa to be shorter and more recognized with being accepted in other locations (like a travel visa).
In terms of United States usage, Visa is the undisputed king. In 2014, the purchasing volume on Visa cards was a whopping $1.2 trillion, almost double that of the nearest competitor (American Express). There were 304 million Visa cards in circulation in 2014, again the largest by far of any of the four major companies.
It wasn’t too long after BankAmericard’s success that other banks wanted to get in on the action. A consortium of several California banks (most notably Wells Fargo, which also eventually acquired several of the other involved partner banks) eventually launched a card called “Master Charge: The Interbank Card” in 1966. Many simply called it “MasterCharge” as the initial title was a bit of a mouthful, but in 1979 the name was changed again to MasterCard, which it has been ever since.
Although it had significant ground to make up on Visa, which had been in the market for well over a decade, MasterCard quickly made a lot of mergers and acquisitions (too many to list here) which strengthened its position both in the U.S and aboard. MasterCard soon became firmly ensconced in second place behind Visa.
In 2014, MasterCard saw a purchasing volume of $607 billion, which again – is quite a bit behind Visa’s $1.2 trillion (and even a bit behind American Express, which we’ll cover shortly) but definitely nothing to scoff at. In terms of cards in U.S. circulation, there were 191 million active MasterCards in 2014, up from 178 million in 2013.
Unlike the other two companies listed previously, American Express got its start outside of the banking industry as a freight delivery service, oddly enough. It had its hand in a variety of pots though, and soon realized its financial sector was the most profitable. After World War II, in part to take advantage of an absolutely ridiculous economy boom, American Express began offering its customers charge cards that could be used at a wide variety of locales.
Thanks to sometimes hefty annual fees (as much as $2,500 a year for their ultra-exclusive Centurion card, which is on top of a one-time $5,000 activation fee), American Express has traditionally been viewed as a more appropriate option for the affluent, which is a big reason why they languish in a distant third in terms of number of cards in circulation (54.9 million in the U.S. in 2014). However, looking at their purchasing volume tells a different story. Despite much fewer active cards in the market, American Express is actually second in terms of money spent on their cards – $688 billion in 2014. How much of that has to do with the no-limit cards that allow users to purchase anything remains to be seen.
Discover is definitely the neophyte of the group here, and its relatively recent foray into the credit card market is a big reason why it’s a distant fourth behind the aforementioned cards. But considering it wasn’t introduced until the 1980s, it’s impressive how much of a foothold it was able to gain, and how quickly. Relatively novel ideas at the time, such as no annual fee, cash back rewards, higher credit limit for introductory accounts, and reduced merchant fees allowed it to make significant headway against the Visa and MasterCard leaders (at least compared to other cards like Advanta or Choice).
Discover continues to grow, but has quite a bit of catching up to do – in 2014, its purchasing volume was $129 million, or just about 10% of Visa’s.
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