What happened

The stock market is in the red on Wednesday after a week or so of upward momentum. As of 11:20 a.m. EDT, the Dow Jones Industrial Average and S&P 500 were lower by 2.1% and 2.5% respectively.

The financial sector is getting hit especially hard. American Express (NYSE:AXP) and Discover Financial Services (NYSE:DFS) are down by 6% and 10%, respectively. On the other hand, Mastercard (NYSE:MA) is only lower by 2%, doing slightly better than the major indices.

Stack of four credit cards.

Image source: Getty Images.

So what

The short explanation is that the differences in these companies' business models are shining through. Mastercard is purely a payment processor, meaning it facilitates the transfer of money from one place to another. It earns its money by collecting a small percentage of the transactions processed through its network, so it could certainly take a hit from a slowdown in consumer spending.

On the other hand, American Express and Discover are not only payment processors, but act as the lenders themselves. This is known as a "closed loop" payment network. When you swipe your American Express credit card, Amex not only moves money from your account to the merchant's, but it actually loans you the money itself.

This creates an entirely different level of exposure to recession fears. Not only could payment volume slow down, but consumers could have trouble paying their bills in a prolonged downturn.

Now what

Finally, you may notice that there's a big gap between Amex and Discover in terms of stock performance. A likely explanation is that American Express' loan portfolio is generally higher quality, as they have a relatively affluent customer base and high credit standards, compared to Discover.

This is an important point to remember if the U.S. recession is deeper or longer than expected.