Deep dive: American Express vs. Visa&Mastercard

A Data-Driven Comparison of Payment Giants

Business Models and Market Structures

At the foundation of their operations, American Express (Amex), Visa, and Mastercard follow fundamentally different business models that shape their market strategies, revenue streams, and risk exposure.

American Express operates a closed-loop system, meaning it controls every aspect of the payment process. Amex issues its own cards, manages customer relationships, processes transactions, and directly negotiates merchant fees. This integrated model allows Amex to extract revenue from both cardholders and merchants while collecting comprehensive data on spending patterns.

• Cardholders: Approximately 120 million worldwide

• Merchant Network: About 10 million in the U.S.; 30 million globally

• Global Reach: Accepted in over 160 countries

In contrast, Visa and Mastercard utilize an open-loop system. They provide the payment infrastructure but rely on banks and financial institutions to issue cards and manage customer relationships. These networks focus exclusively on transaction processing, while issuing banks assume credit risk and customer service.

• Visa Cardholders: 3.5–4.0 billion cards in circulation

• Mastercard Cardholders: 2.5–3.0 billion cards in circulation

• Global Reach: Visa in 200+ countries, Mastercard in 210+ countries

• Merchant Network: Over 70–80 million merchants worldwide (combined)

Key Takeaway:

Amex’s closed-loop model allows for greater control over customer experiences and revenue streams, while Visa and Mastercard’s open-loop networks enable broader global scalability.

Revenue Streams and Profitability

Diving into how these companies make money reveals sharp contrasts in their financial models.

American Express generates revenue from multiple direct sources:

1. Merchant Discount Fees:

• Averaging between 2.3% and 3.5%, higher than Visa and Mastercard.

• Customizable merchant agreements that include marketing perks.

2. Annual Cardholder Fees:

• Ranging from $0 to $695 for premium cards.

3. Interest Income:

• Collected on revolving credit balances.

4. Net Revenue:

• Consistently between $40–$50+ billion annually.

• 58–60% of this revenue comes from merchant discount fees.

Visa and Mastercard primarily earn through:

1. Network Transaction Fees:

• Collected from banks and merchants per transaction.

• Typically a few basis points or fixed transaction fees.

2. Assessment and Interchange Fees:

• Interchange fees (1.3%–2.6%) go mostly to issuing banks.

• Visa and Mastercard collect a portion for facilitating transactions.

3. Net Revenue:

• Visa: $20–$30+ billion annually.

• Mastercard: $15–$25+ billion annually.

Profit Margins:

Both Visa and Mastercard operate with higher profit margins due to their asset-light models, benefiting from massive global transaction volumes without taking on credit risk.

Key Takeaway:

Amex relies on higher merchant fees and premium cardholder services for revenue, while Visa and Mastercard profit from sheer transaction volume across their networks.

Market Share and Transaction Volume

When it comes to transaction volume and market share, Visa and Mastercard vastly outperform American Express, yet Amex holds significant sway in high-spend segments.

Global Transaction Volume:

• American Express: ~$1.3–$1.5 trillion annually

• Visa: ~$10–$11 trillion annually

• Mastercard: ~$6–$7 trillion annually

U.S. Market Share (Credit Card Spending):

• Visa: Over 50% of U.S. credit card transactions

• Mastercard: About 25–30%

• Amex: Roughly 20%, despite a smaller cardholder base

Transaction Count:

• Visa: Over 200 billion transactions annually

• Mastercard: Around 100–120 billion transactions annually

Consumer Spending Habits:

Amex cardholders typically spend more per transaction, especially in sectors like travel, luxury goods, and entertainment, reinforcing its premium positioning.

Key Takeaway:

Visa and Mastercard dominate in terms of global reach and transaction volume, but Amex captures high-value spending from a smaller, wealthier customer base.

Merchant Acceptance and Risk Management

Merchant Acceptance:

Visa and Mastercard enjoy near-universal acceptance, making them indispensable for everyday consumers. Their lower merchant fees and partnerships with countless banks and processors give them a foothold even in small businesses and emerging markets.

• Visa/Mastercard: Accepted by 70–80 million merchants globally

• Amex: Accepted by about 30 million merchants worldwide

However, many merchants still welcome Amex due to its customer base’s higher spending habits, despite the higher fees.

Risk Management:

The companies also differ significantly in how they handle risk:

• Amex: Assumes full credit risk as it issues its own cards. It performs its own credit checks and bears responsibility for customer defaults.

• Visa/Mastercard: Pass risk to issuing banks, focusing solely on secure transaction processing and fraud prevention.

Key Takeaway:

Amex’s higher merchant fees have historically limited acceptance, though its affluent customers justify the cost. Visa and Mastercard’s low-risk, high-volume model ensures widespread global adoption.

Brand Strategy and Market Positioning

Brand strategy is where the divergence between these companies becomes most apparent.

American Express has built a brand synonymous with exclusivity and prestige. Its marketing focuses on high-income individuals and businesses, offering luxurious perks like airport lounge access, concierge services, and elite rewards programs. Its iconic tagline, “Membership has its privileges,” perfectly captures this focus.

Visa and Mastercard, by contrast, emphasize global accessibility, convenience, and reliability. Their branding focuses on being accepted everywhere, making transactions seamless and secure for billions of consumers across all income levels.

• Visa’s Focus: Speed, security, and universal acceptance.

• Mastercard’s Focus: Innovation and connecting consumers to experiences (e.g., “Priceless” campaign).

Key Takeaway:

Amex competes on exclusivity and premium service, while Visa and Mastercard dominate through scale and inclusivity.

Control vs. Scale—Which Model Wins?

At the heart of this rivalry lies a strategic trade-off between control and scale.

American Express prioritizes control, managing every aspect of its closed-loop system. This allows it to command higher fees and cater to affluent customers but limits its growth potential.

Visa and Mastercard, in contrast, thrive on scale. Their open-loop networks enable them to process billions of transactions worldwide, keeping risks low and profits high.

Revenue Models Differ:

• Amex: Relies on higher merchant fees, annual fees, and interest income.

• Visa/Mastercard: Depend on small transaction fees across billions of transactions.

Risk Exposure Varies:

• Amex: Higher revenue per customer but bears credit risk.

• Visa/Mastercard: Lower risk, relying on partner banks for underwriting.

Market Reach:

• Visa/Mastercard: Ubiquitous global presence.

• Amex: Stronger in high-spending sectors but with smaller scale.

Final Thought:

There’s no clear winner in this battle. American Express leverages deep customer relationships and premium services to extract more value from fewer customers, while Visa and Mastercard dominate through scale, accessibility, and low-risk growth. Each strategy is wildly successful in its own right, tailored to different segments of the global market. The choice between them ultimately comes down to what matters more—exclusive experiences or universal acceptance.

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