Over the past five- and 10-year periods, Mastercard (NYSE: MA) has produced stellar returns of 103% and 584%, respectively. This outstanding performance easily crushes the total returns of both the S&P 500 and the Nasdaq Composite Index. 

But for a business that currently carries a market capitalization of $342 billion, there is a lot that investors simply get wrong when it comes to understanding Mastercard's operations. Here are three common misconceptions you should avoid. For what it's worth, they also apply to the company's chief rival, Visa. 

An extremely prevalent misunderstanding about Mastercard I often see stems from the fact that people think it extends credit, and as a result, takes on credit risk. In actuality, this is what the banks do.

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Source Fool.com