MarketWatch  Apr 23  Comment 
Visa reports earnings on Wednesday, April 25, while Mastercard reports a week later. Visa Europe remains an area of focus for Visa, while Mastercard’s services business is also of interest.
The Hindu Business Line  Apr 23  Comment 
The Andhra Pradesh Government and Mastercard are together holding AP Cyber Security Summit at the Fintech Valley here on April 27 and 28.The summit
The Economist  Apr 19  Comment 
AMERICANS, and people who travel to America, have good reason to celebrate this month. By the end of April, the four major credit-card networks in the country will all stop requiring retailers to collect signatures from customers when completing...
MarketWatch  Apr 18  Comment 
Visa Inc. and Mastercard Inc., the two largest U.S. card networks, said Wednesday that they’re planning to drop their longstanding initiatives to get online shoppers to use dedicated payment buttons.
Benzinga  Apr 16  Comment 
After a strong week, cryptocurrencies got off to a shaky start this week, with most major currencies trading lower on Monday. Headlines Samsung Electronics is reportedly interested in using blockchain technology to streamline its supply...
The Hindu Business Line  Apr 12  Comment 
Mastercard on Thursday said it has opened an expanded technology centre in Vadodara to drive growth and support the government’s agenda for digital
MarketWatch  Apr 9  Comment 
Shares of Visa Inc. are up 2.2% in midday trading Monday after Guggenheim analyst Jeff Cantwell raised his price target on the stock to $143 from $136 and wrote that Visa shares were a better bet than Mastercard Inc. shares. "We think the...
Motley Fool  Apr 6  Comment 
These two credit card companies are trading at high valuations after market-crushing runs, but investors might not want to sell yet.


MasterCard (MA) is the second largest processor of electronic payments in the world. MasterCard does not issue credit cards directly, but licenses its brand to banks, who then issue co-branded cards (such as the Chase MasterCard). MasterCard makes money by charging merchant fees on individual transactions and by charging the credit card issuers licensing fees and a small percentage of the total dollar amount spent on each card.

MA has a strong opportunity for growth for its debit card services because of the shift away from credit cards as Interest Rates and U.S. Unemployment have increased over the past year. It is important for MA's long term viability to develop a stronger debit card platform as another outlet for revenue from the increased use of debit cards since consumers are shifting away from credit card use. Also, in May 2009, MA lost half of its largest customer's business to debit-leading Visa and has the potential to lose more business unless it can boost its debit card services and technologies.

Despite strong revenue growth (215% from 2003-2007), MasterCard's profitability has suffered in recent years due to rising expenses and a series of lawsuits. The company was sued by American Express for blocking its client banks from issuing AMEX branded cards. The suit, which was decided in AMEX's favor, has already resulted in a $2.1B settlement from Visa (MA's co-defendant) and could also have a dramatic impact on MasterCard's future earnings. In June 2008, it was announced that Discover Financial Services (DFS) was suing Mastercard and Visa (V) for $6 billion.[1] The three parties settled, with MA taking a net after-tax charge of $515.5 million in Q3 08.[2]

Business Overview

MasterCard collects revenue from both transaction-processing and brand-licensing fees and from a percent assessment fee on the money flow, or gross dollar volume (GDV), on individual cards. During the past five years, revenue has steadily grown in part due to organizations around the world switching from paper-based to card-based payment methods. In 2007, the GDV of all transactions made using MasterCard branded programs was approximately 2.3 trillion USD, and MasterCard collected over 4 billion USD in revenue [3]. During the past few years, MasterCard’s revenue source has gradually shifted from card-based assessment fees to transaction and licensing fees. In 2007, 73.8% of net revenues came from transaction and licensing fees and 26.2% came from assessments [4]

MasterCard uses a four-party payment system to process transactions. A card-holder makes a purchase from a merchant using a card, and the merchant is paid the amount of the purchase after the interchange fee deduction by the merchant’s bank, or acquiring bank. The card-holder’s bank, the issuing bank, then pays the acquiring bank and charges the amount of the purchase to the card-holder. MA processed transactions increased 17.5% from 2005 to 2006 and 16.2% from 2006 to 2007.[5]

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By increasing the number of cardholders and the dollar value of total transactions, MasterCard plans to flood the market with payment cards. Within the United States, the continued increase in use of payment cards provides MasterCard with a fertile field for growth in sales. Internationally, MasterCard will expand into regions experiencing rapid growth by promoting strong relationships with financial services firms and working to increase the number of merchants that accept MasterCard. To appeal to a wide range of customers, MasterCard offers a number of credit and debit payment plans. These may have different spending limits, third party services such as emergency travel assistance, and loyalty reward programs.

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Trends and Forces

Susceptibility to adverse economic environments due to revenue concentration

Client Concentration

In 2007, 31% of MA total revenue was from its five largest consumers[8]. Loss of business from any of the five largest customers could present a significant setback for MasterCard. Since MasterCard depends on business agreements with its largest customers, consolidations may harm MasterCard’s business if a customer is acquired by another institution that does business with MasterCard’s competitors. In general, mergers reduce MasterCard's profitability since large banks are better able to negotiate prices than small banks.

In particular, J P Morgan Chase (JPM), which acts as MasterCard’s settlement bank, generated $59 billion, or 11% of total revenue [9]. In May 2009, J P Morgan Chase (JPM) shifted more than half of its portfolio of debt-card users to Visa. Most of the customers were part of Washington Mutual (WM), which was acquired by JP Morgan in September of 2008. The shift was motivated by Visa's superior debit platform.[10]

Country Concentration

Although MA operates globally to shield itself from revenue concentration susceptibility, almost half of its total revenue is generated in the U.S., it’s largest geographic market.[11] It’s five highest revenue generating countries besides the U.S. are the UK, Canada, Brazil, and Australia.[11] Of the additional 200 countries and 160 currencies that it operates in, no country accounts for more than 10% of its revenues. [11] The volatility of the global markets have had both adverse and beneficial effects on foreign currency exchange rates , such as the weakened U.S. Dollar (USD) against the Euro (EUR) and the Brazilian Real. Overall, the Credit Crunch and global economic turndown have not significantly altered MA’s bottom line since it does not extend credit, but only develops payment solutions and processes transactions. However, the recession has had an effect on the number and size of credit transactions.

New payment technologies

MasterCard experienced a 16.2% increase in the number of payments processed during the past year, which reflects the overall trend of switching from paper payment methods to electronic payment methods, including cards [12]. New payment technologies represents one of the greatest growth opportunities for MA to to increase its volume of debit card business and attract new businesses in upcoming years. It has become increasingly important for MA to develop a strong debit platform to keep on pace with its biggest rival, Visa. Building a strong debit platform is especially important in the current economic downturn as consumers have begun to shy away from credit cards and shift towards debit cards.

Global Political and Economic Conditions

A significant downturn in the economy, especially in the United States and in Europe, could negatively impact MasterCard’s business since it depends on the overall level of consumer and business spending. However, MA stands to benefit as consumers have increasingly shifted away from credit cards to debit cards due to rising interest rates and U.S. Unemployment. In addition, banks have lowered credit card limits for many of its consumers, which has also promoted debit card use.

Unfavorable Litigation

MasterCard currently faces several significant lawsuits including antitrust suits filed by American Express Company (AXP) and Discover Financial Services (DFS), and a review of interchange fees, which are paid by card acquirer banks to card issuer banks for transactions using MasterCard cards. The antitrust suit comes on the tail of a Supreme Court ruling that found MasterCard guilty of violating antitrust laws by preventing its customers from issuing credit cards from rival companies, and the new lawsuit seeks damages based on lost revenue. Since MasterCard's customers are now allowed to distribute other credit cards, competition will increase in the long term. Although MasterCard has not finished legal proceedings in the suit that followed, Visa, a co-defendant, has already paid American Express Company (AXP) 2.1 billion USD in settlement[13].

Secondly, a review of interchange fees in the US Congress may result in litigation that makes MasterCard's four-party business model less competitive. Although MasterCard does not collect interchange fees, MasterCard's customers receive revenue from interchange fees during each money transfer. If new laws prevent banks from collecting interchange fees, fewer customers may be willing to participate in MasterCard's four-party system, resulting in lower transaction volume, fewer cards issued, and lower revenues for MasterCard.

Lastly, in 2003 MasterCard lost a lawsuit to its merchants. As part of the settlement the company was forced to pay $125MM in 2003 and $100MM every year after until 2014. [14]


MasterCard’s primary competitive advantages are brand name and pricing. The MasterCard brand is recognized worldwide, in part due to its global “Priceless®” marketing campaign. Although consolidation of banks may increase the bargaining power of MasterCard’s largest customers, MasterCard will rely on brand loyalty to impose higher prices on customers with less bargaining power.

In addition to electronic payments, MasterCard competes across all payment methods, including paper-based transactions (cash and checks). In the US, its largest competitors are Visa, American Express Company (AXP), and Discover Financial Services (DFS). Visa maintains a much larger GDV than MasterCard and its competitors. American Express and Discover have a competitive advantage because they have direct relationships with both cardholders and card issuers, and are not affected by regulation of interchange fees. Globally, foreign competitors have significant market share in their respective countries, such as JCB in Japan and China Union Pay in the People’s Republic of China.

MasterCard also faces growing competition from electronic funds transfer (EFT), or PIN-based networks, which allow the cardholder to authorize transactions from his or her bank account to the merchant by entering a PIN. This system may be perceived as more secure, since each transaction must be authorized at the time of sale, and are sometimes less expensive since a flat fee is charged for each transaction. Visa currently holds a dominant market share in this sector.

Market Share


  1. Discover Sues Rivals for Over $6 Billion
  2. Mastercard Website, "Investor Relations"
  3. 2007 MA 10-k, Item 1: Business, page 6
  4. 2007 MA 10-k, Item 1: Business, page 8
  5. MA 2007 Annual Report
  6. 2006 MA 10-k, Item 6, pg. 42
  7. MasterCard News Center
  8. 2007 MA 10-k, Item 1A: Risk Factors, page 32
  9. 2006 MA 10-k, Item 1A, pg. 32
  10. Bloomberg, "MasterCard Said to Lose Users After JPMorgan Shift," 05/22/09"
  11. 11.0 11.1 11.2
  12. 2007 MA 10-k, Item 1: Business, page 4
  13. "Visa Agrees to Pay Amex $2.1 Billion to Settle Suit," The New York Times
  14. MA 2006 10-K pg 28
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