If I default on my credit card balance, it's the issuing bank that hurts, not Visa/MC/AMEX/Discover.
Actually, upon further thought, this is only partly correct. AMEX and Discover do have their own banks (American Express Bank and Discover Bank) so I presume that if I default on a AMEX-only balance or a Discover balance, AMEX or Discover take the hit. But for any Visa, Mastercard, or bank-issued AMEX balance, which make up the lion's share of the credit card universe, it's the issuing bank that carries the consumers' debt, not the credit card company.
Amex and Discover are "issuers" and also "networks" - so they issue the card (and take on the debt) and run the payment networks and get a cut of the transaction fees.
It's way more complex, I've left out a lot of moving parts, but suffice it to say that 50% of the debt could go into default and both of these companies would still be standing.
For Visa/MC, it's a network, and cards are issued under the Visa/MC branding and the banks participate in the network costs and fees, but the banks also hold their own cardhoder debt (to a degree, this is where things like credit default swaps start to come into the picture, and more. It's hideously complicated)>
The Amex Bank and Discover Bank are separate corporations and while there's money flowing to/from these banks in a variety of ways, it's not like the Visa/MC - Bank relationships.
Have a look at creditcards.com for some really good info on the subject.
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