While originally the sole issuer of their credit cards, American Express and Discover now have relationships with third party issuers similar to Visa and MasterCard. However, both companies still issue a majority of their cards in the U.S. directly and not through third parties. This is important since American Express and Discover make most of their money from the balances consumers hold on their credit cards and interchange fees. It also means that American Express and Discover underwrite and assume the risk for the debt of most of their cardholders. As a result, both credit card companies target more affluent cardholders who will spend more on their credit cards and are less likely to default.
The attractiveness of American Express and Discover to their cardholders rests on their reward programs and supposedly superior customer service. In the case of the Discover, cardholders also like that there is no annual membership fee.
On the acquiring side, both Visa and Mastercard cards are accepted by 52.9 million merchants worldwide while Discover has 44 million and American Express has 25.3 million, according to the Nilson Report. However, in the U.S. American Express and Discover have reached near parity in merchant acceptance for their cards alongside Visa and Mastercard.