What is the difference between MasterCard and Visa? –Jay, Evanston, Illinois

Damn little. In fact, some think the two cards ought to be merged–and it might be a good thing for consumers if they were. If the somewhat misleading “competing brands” business were stripped away, people might begin to understand what bank credit cards really are and learn to take better advantage of them.

Don’t get me wrong. Visa and MasterCard are separate firms and they do compete after a fashion. But they’re not like Pepsi and Coke. One Pepsi is pretty much the same as any other Pepsi, but a Visa card is not necesssarily the same as any other Visa card. Interest rates, fees, and other terms vary considerably. Though the Visa/MC split tends to disguise it, the real competition isn’t between brands, it’s among the thousands of banks who issue one or both of the cards.

Visa and MasterCard are not the multibillion-dollar conglomerates many people imagine but actually are fairly small “membership associations” controlled by the banks that own them. They’re a little like the American and National leagues. Fay Vincent may have thought he was in charge, but when you get right down to it, it’s really the team owners (read: issuing banks) who call the shots.

A little history may clarify this. Visa started out in the 1960s as BankAmericard, which was issued by the Bank of America in San Francisco. To spread the card nationwide, Bank of America signed up other banks on a franchise basis. Each bank issued its own cards, set its own fees and other terms, and serviced its own customers under the BankAmericard name. Bank of America provided a clearinghouse for charge slips and merchant payments. Using a single brand with a central clearinghouse made for wide acceptance by merchants, which in turn made the cards popular with consumers.

But playing Seven Dwarfs to Bank of America’s Snow White rankled the franchisee banks. At their prodding BankAmericard was spun off as a separate company and by 1977 had evolved into Visa International. Today some 6,000 U.S. banks have issued 144 million Visa cards that in 1991 were used for $171 billion worth of purchases, making Visa the most popular credit card in the country. (MasterCard, with $99 billion, is number two.) But Visa remains a relatively small outfit, with just 1,200 employees in the U.S. The top issuers of Visa cards (Citicorp, Chase Manhattan, and Bank of America rank one, two, and three) are much bigger. A similar tale can be told about MasterCard.

What does all this mean to you, Mr. and Ms. Consumer? Simply that you shouldn’t worry whether you’ve got Visa or MasterCard; rather, you should shop around for the bank offering the best deal on its cards. For example, many issuers charge 19.8% interest, but rates as low as 8% are available (although you need excellent credit to qualify). Bankcard Holders of America, a consumer group, will sell you a list of 52 no-annual-fee/low-interest issuers for $4; call 800-327-7300.

While there’s not much difference between Visa and MC, there are a few distinctions in the plastic payment racket to be aware of. Credit card vs charge card, for example. Visa and MC are credit cards–you borrow money and the bank charges you hefty interest on your unpaid balance. If you’re shrewd enough to find an issuer that charges no annual fee and rich enough to pay the bill as soon as it arrives, use of the card costs you virtually nothing. American Express, on the other hand, is a charge card–you’re supposed to pay right away. AmEx makes its money by charging you an annual fee for the card. Why should anybody use a card that costs more and lets you do less? Good question–basically it comes down to “prestige” and the fact that there’s no credit limit (no stated limit, anyway) on American Express purchases.

Then there are “debit cards,” where the money is taken directly out of your bank account. Debit cards are mainly a cash/check substitute; unlike credit cards, you pay now, not later. The credit limit consists of the amount of money you’ve got in your account. But at least you won’t tempt thieves with your bankroll.

Art accompanying story in printed newspaper (not available in this archive): illustration/Slug Signorino.