Mastercard: Definition and Ranking in Global Payments Industry (2024)

What Is Mastercard?

Mastercard is the second-largest payments network, ranked behind Visa, in the global payments industry. Other major payments networks include American Express and Discover. Mastercard partners with member financial institutions all over the world to offer Mastercard-branded network payment cards.

Mastercard uses its proprietary global payments network, which it refers to as its core network, to facilitate payment transactions, which usually involve the Mastercard account holder and a merchant, along with their respective financial institutions. Payments can be made via credit, debit, or prepaid cards.

Key Takeaways

  • Mastercard is a payment network processor.
  • Mastercard partners with financial institutions that issue Mastercard payment cards processed exclusively on the Mastercard network.
  • Mastercard’s primary source of revenue comes from the fees that it charges issuers based on each card’s gross dollar volume.

Mastercard Explained

Mastercard itself is a financial services business that primarily generates revenue from gross dollar volume fees. Mastercard cards are issued by member banks with the Mastercard logo and are characterized as open loop. This means that the card can be used anywhere that the Mastercard brand is accepted.

Across the payments industry, there are four major payment card processors: Mastercard, Visa, American Express, and Discover. Each company operates a payments network and partners with a variety of institutions for card offerings.

All electronic payment cards have cardholder numbers that begin with anissuer identification number(IIN) that distinguishes the network processor for electronic payments. The IIN can help to identify the card brand if a logo is not visible.

The Mastercard Business

In 2020, Mastercard reported $6.3 trillion worth of gross dollar volume, which shows the amount of money comprehensively transacted on all of its card offerings. The company partners with a variety of institutions to offer several types of cards. Comprehensively, its card offerings include credit, debit, and prepaid cards. The majority of Mastercard’s business is through partnerships with financial institutions and their organizational co-brand partners to offer open-loop credit card options.

Mastercard does not have a banking division, as discussed in its 2020 Form 10-K filing:

We do not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of our products.

Branded and co-branded cards through financial institutions

Mastercard partners with member financial institutions that, in turn, issue Mastercard-branded cards to consumers, students, and small businesses. Member financial institutions often partner with organizations in co-branded relationships to issue Mastercard-branded rewards cards to their customer bases. These organizations can include airlines, hotels, and retailers.

When Mastercard partners with a financial institution, the institution serves as the issuer. That institution determines the terms and benefits that a cardholder can receive on their card. A financial institution may choose to partner for the issuance of a credit card, debit card, or prepaid card.

To attract different types of consumers, financial institutions offer numerous features on Mastercard-branded cards. Some popular credit card features may include no annual fee, issuer-branded or custom organization–branded rewards points, cash back, and 0% introductory rates.

When credit, debit, and prepaid Mastercard cards are issued through partners, the financial institution is primarily responsible for all of the underwriting and issuance of the card.

Mastercard Network Processing and Fees

Cards within the Mastercard network have different relationship maps depending on the type of card offered and the agreements in place. Regardless, Mastercard charges fees for usage of each Mastercard.

Typically, the five entities involved in a transaction are the cardholders, merchants,acquiring banks, issuers, and Mastercard as the network processor. Fees can vary, depending on card and merchant agreements.

As a network processing service provider, Mastercard is responsible for the processing of a transaction. Mastercard may charge the issuer of a Mastercard a switching fee at the time of a card authorization, but generally, most fees involved with the transaction process are known as interchange fees and are negotiated between the issuer and the acquirer.

Merchant discounts and issuers

To accept Mastercard electronic payments, a merchant must have their own (acquiring) bank that is capable of receiving electronic payments on the Mastercard network. When a cardholder uses their Mastercard, the funds are routed from the cardholder’s (Mastercard-issuing) bank to the merchant’s bank account. The merchant pays the issuer a fee on each transaction, known as the merchant discount.

For Mastercard, the majority of the company’s revenue is generated from transaction fees charged to issuers and acquirers, which pay Mastercard based on gross dollar volume (GDV). The GDV fee is a percentage of the total GDV. Issuers also may be required to pay Mastercard a fee based on the co-branded card agreement. Each co-branded card agreement has different terms for fees, but in general, the GDV fee is a basic standard. Mastercard may also charge the issuer a switching fee for each card authorization, which can be a factor in determining the issuer’s interchange fee for the merchant.

Mastercard: Definition and Ranking in Global Payments Industry (2024)

FAQs

What is the Mastercard explained? ›

Mastercard as a card network

In addition to the services and products it offers to businesses, Mastercard operates a huge network for facilitating payment transactions, bringing together financial institutions, businesses, and customers. It acts as an intermediary that authorizes, clears, and settles transactions.

What industry sector is Mastercard? ›

Mastercard, Inc. operates as a technology company. The firm engages in the payments industry that connects consumers, financial institutions, merchants, governments and business.

What is the highest rank of Mastercard? ›

World Elite™ Mastercard®

Outstanding purchasing power and top-of-the-line features and benefits.

What is the ranking Visa Mastercard? ›

Mastercard's brand is ranked #88 in the list of Global Top 100 Brands, as rated by customers of Mastercard. Their current market cap is $350.76B. Visa's brand is ranked #65 in the list of Global Top 100 Brands, as rated by customers of Visa. Their current market cap is $485.94B.

What makes Mastercard different? ›

They have different fee structures

Visa charges data processing fees to the card issuer on a per-transaction basis, while Mastercard charges issuing banks connectivity fees to use the Mastercard network itself during different stages of the payment processing workflow.

What is the international payment system for Mastercard? ›

The international payment system Mastercard enables funds to be transferred within this payment system, including cross-border transfers. Transfer of funds is the movement of a certain amount of funds for the purpose of transferring it to the payee's account or receiving it in cash .

What are the core values of MasterCard? ›

MasterCard values integrity and transparency and has zero tolerance for corrupt activities of any kind, whether committed by MasterCard employees or by third parties acting for and on behalf of MasterCard.

Who is MasterCard owned by? ›

Mastercard (MA) Ownership Overview

The ownership structure of Mastercard (MA) stock is a mix of institutional, retail and individual investors. Approximately 42.45% of the company's stock is owned by Institutional Investors, 10.77% is owned by Insiders and 46.78% is owned by Public Companies and Individual Investors.

What are some fun facts about MasterCard? ›

In 1983, MasterCard became the first credit card company to introduce the laser hologram on its cards to combat counterfeiting. In 1988, MasterCard became the first payment card issued in the People's Republic of China.

Is Mastercard a global company? ›

Mastercard - A Global Technology Company in The Payments Industry.

What are the three levels of Mastercard? ›

All Mastercards are assigned a certain tier — Standard, World and World Elite — that provide different levels of added benefits.

Who is bigger than Mastercard? ›

While Visa is larger in terms of transactions, purchase volume, and cards in circulation, Visa and Mastercard have nearly identical global merchant acceptance footprints.

Why is Mastercard good? ›

All Mastercard levels offer some amount of purchase protection and insurance with their cards. World and World Elite Mastercard, however, offer the most. These services include: Mastercard ID Theft Protection, which alerts you if fraudulent activity is detected and assists you with resolution.

Is Mastercard the best card? ›

Mastercard credit cards are more widely accepted internationally, while Visa cards tend to offer more benefits. But for most consumers, there is no practical difference between Visa and Mastercard. You should only worry about whether to get a Visa or Mastercard if you're torn between two offers.

Why is Mastercard valued higher than Visa? ›

Mastercard is one of the world's most recognizable brands today. It is the second largest card network in the U.S., accounting for more than a quarter of all purchase volume using a payment card, according to Nilson Report. As the world transitions to a more cashless society, Mastercard's value has continued to soar.

What is the main difference between Visa and Mastercard? ›

Visa and Mastercard: Key differences

Because Visa and Mastercard have nearly identical global acceptance records, it rarely makes sense to pick one type of card over the other based on where you can use it. The only real differences between Visa and Mastercard are the features and rewards individual cards offer.

What is the difference between Mastercard and normal card? ›

Both Visa and MasterCard earn revenue through the payment processing fee. However, the method of charging fees differs. Visa charges the card issuer on a per-transaction basis or based on the card volume. Contrarily, MasterCard charges card-issuing institutions based on the percentage of global dollar volume.

What is the advantage of a Mastercard? ›

Purchase protection and insurance

Mastercard ID Theft Protection, which alerts you if fraudulent activity is detected and assists you with resolution. Cell phone protection up to $1,000 in yearly coverage. Global Emergency Services, which offers emergency assistance anytime, anywhere in any language.

Why is Mastercard better than Visa? ›

Visa and Mastercard are the two largest card networks in the world, accepted in more than 200 countries and territories. Mastercard credit cards are more widely accepted internationally, while Visa cards tend to offer more benefits. But for most consumers, there is no practical difference between Visa and Mastercard.

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