How Mastercard Plans To Beat Visa

CNBC
27 May 202312:29

TLDRMastercard, established in 1966, has become the second largest card network in the US and the most accepted card globally. With a market cap exceeding $360 billion as of May 2023, the company has seen significant growth, particularly in a transitioning cashless society. Mastercard's revenue primarily comes from interchange fees and value-added services, leveraging its extensive consumer spending data. Despite competition from Visa, American Express, and emerging digital payment platforms, Mastercard maintains a strong market position and continues to expand its global reach, focusing on business-to-business payments and adapting to evolving financial landscapes.

Takeaways

  • 🌐 MasterCard is recognized globally as one of the most prominent brands, largely due to its iconic slogan and extensive market presence.
  • 🥇 It ranks as the second largest card network in the US, commanding over a quarter of all purchase volume using payment cards.
  • 🌍 Internationally, MasterCard's reach is significant, with nearly a quarter of the $624 billion spent using payment cards in 2022 being processed through its network.
  • 📈 As of May 2023, MasterCard boasts a market cap exceeding $360 billion, reflecting its substantial growth and value in the transition to a cashless society.
  • 🚀 The company's shares have experienced nearly a 100% gain over the past five years, showcasing its strong performance and investor confidence.
  • 🌟 Despite the financial crisis and pandemic, MasterCard has maintained a remarkable ten-year CAGR of 20%, outpacing the market overall which is in the high single digits.
  • 🛑 Regulatory pressures pose a significant risk to MasterCard's business model as a large enterprise, with potential antitrust investigations and legal challenges.
  • 🔄 MasterCard's revenue primarily comes from interchange fees generated by its intricate payment network, earning on average about $0.30 on every $100 transaction.
  • 💡 The company also offers value-added services and solutions, particularly in advisory analytics, data, cybersecurity, and advanced security services.
  • 🏦 Despite lagging behind Visa in terms of card circulation and net revenue, MasterCard's stock has outperformed Visa's over the past five years due to its growth potential and margin expansion.
  • 🔄 MasterCard faces competition not only from established players like Visa and American Express but also from regional and digital payment alternatives.

Q & A

  • What is Mastercard's position in the US card network market?

    -Mastercard is the second largest card network in the US, accounting for more than a quarter of all purchase volume using a payment card.

  • How significant was Mastercard's global market share in terms of spending in 2022?

    -Nearly a quarter of the over $624 billion spent using a payment card in 2022 was made using a Mastercard.

  • What is the market cap of Mastercard as of May 2023?

    -As of May 2023, Mastercard had a market cap of over $360 billion.

  • What was the ten-year CAGR of Mastercard's earnings pre-pandemic?

    -Mastercard's earnings grew at a ten-year CAGR of 20% pre-pandemic.

  • What are the main challenges Mastercard faces in maintaining its business model?

    -Mastercard faces growing competition and stricter regulations, with the biggest risk being the potential regulatory changes affecting its business model.

  • How did Mastercard establish itself as a competitor to Visa?

    -Mastercard was founded in 1966 by the Interbank Card Association as a direct competitor to BankAmericard, which later became Visa. After being denied a Visa license, they decided to create their own card network and attracted a number of smaller banks.

  • What is the primary revenue source for Mastercard?

    -Mastercard's main revenue source is interchange fees generated from card processing, which made up over 64% of their revenue in 2022.

  • What are the two largest categories of Mastercard's value-added services?

    -The two largest categories of value-added services for Mastercard are advisory analytics and data, and cybersecurity and advanced security-related services.

  • How does Mastercard's performance compare to Visa in terms of market share and revenue?

    -Mastercard accounts for nearly a quarter of market share based on purchase transactions globally, while Visa accounts for more than a third. In 2022, Mastercard reported a net revenue of $22.2 billion, compared to Visa's $29.3 billion.

  • What is the significance of Mastercard's position in the international market?

    -Mastercard's position in the international market is significant, particularly in Europe where it has gained more market share compared to Visa. This is beneficial due to Europe being a major cross-border hub, which contributes to revenue.

  • How is Mastercard addressing the challenge of rising competition in the payment network landscape?

    -Mastercard is focusing on expanding its network across merchants, ensuring its presence where customers want to pay and in the ways they prefer. The company is also investing in business-to-business payments, estimating it as a $135 trillion industry.

  • What potential regulatory changes could impact Mastercard's operations?

    -The Credit Card Competition Act of 2022, if passed, could significantly impact Mastercard's operations by enhancing competition among credit card networks and potentially ending the dominance of Visa and Mastercard.

Outlines

00:00

💼 MasterCard's Global Brand Recognition and Market Influence

MasterCard, known for its iconic slogan, is the second largest card network in the US, accounting for over 25% of purchase volume using payment cards. Internationally, it's involved in nearly a quarter of the $624 billion spent using payment cards in 2022. As the most accepted card worldwide, MasterCard's value has grown significantly with the move towards a cashless society. By May 2023, the company had a market cap of over $360 billion, with shares experiencing nearly 100% growth in the past five years. MasterCard's earnings grew at a CAGR of 20% over ten years, a rate much higher than the market overall. However, the company faces challenges from increasing competition and stricter regulations, which pose risks to its business model.

05:00

🚀 MasterCard's Business Model and Revenue Streams

MasterCard was founded in 1966 as a competitor to BankAmericard, now Visa. It has since become a global payment solutions provider, with Visa and MasterCard together controlling 87% of the US market and 63% of the global market. MasterCard operates as a payment processor rather than a lender, generating revenue primarily from interchange fees on card transactions. In 2022, over 64% of its revenue came from its payment network, with an average fee of $0.30 on every $100 transaction. The company also earns from value-added services, including advisory analytics, data services, and advanced cybersecurity. Despite competition from Visa, American Express, and Discover, MasterCard has carved a niche for itself, especially in the international market, where it has outgrown Visa in Europe. The company is also focusing on B2B payments, a $135 trillion industry, to diversify its revenue streams.

10:01

🛡️ MasterCard's Regulatory Challenges and Competitive Landscape

MasterCard operates in a highly regulated market and has faced numerous legal challenges, including an antitrust investigation by the US Justice Department into its debit card program. The Credit Card Competition Act of 2022, if passed, could disrupt the dominance of Visa and MasterCard by requiring cards to support at least two networks, potentially rewriting the credit card industry. Despite these challenges, MasterCard's strategy for continued success lies in expanding its network, ensuring its presence where customers want to pay, and adapting to their preferred payment methods. The company's resilience and adaptability position it well for future growth and maintaining relevance in the evolving payment ecosystem.

Mindmap

Keywords

💡MasterCard

MasterCard is a globally recognized payment technology company that provides a variety of financial services and operates one of the world's largest payment networks. In the context of the video, MasterCard is highlighted as the second largest card network in the US and the most accepted card worldwide, emphasizing its significant role in facilitating cashless transactions and its extensive global reach.

💡Market Cap

Market capitalization, or market cap, is the total value of all a company's outstanding shares of stock. It is calculated by multiplying the company's share price by the number of its outstanding shares and is commonly used to size and compare companies, especially in the stock market. In the video, MasterCard's market cap is cited as over $360 billion as of May 2023, indicating its substantial size and value in the market.

💡Cashless Society

A cashless society refers to a financial system where transactions are conducted without the use of physical cash, relying instead on electronic or digital payment methods. The transition towards a cashless society is highlighted in the video as a trend that has increased the value and relevance of payment networks like MasterCard, as more consumers and businesses adopt digital payment methods.

💡Competition

Competition in a market refers to the rivalry between firms or entities striving to outperform each other to gain market share and meet the demands of consumers. In the context of the video, MasterCard faces growing competition from other payment networks, digital wallets, and alternative payment methods, which can impact its market dominance and revenue generation.

💡Regulation

Regulation refers to the rules and restrictions set by a governing authority to manage and control the behavior of companies and individuals within a specific sector or industry. In the video, it is emphasized that as a large enterprise, MasterCard is subject to numerous regulatory and legal challenges, which can pose significant risks to its business model and operations.

💡Interchange Fees

Interchange fees are the fees that banks charge each other for the privilege of letting merchants accept their cards for payment. These fees are a primary source of revenue for payment networks like MasterCard, which facilitates the transaction between the consumer's issuing bank and the merchant's acquiring bank. In the video, it is noted that MasterCard made over 64% of their revenue from interchange fees generated by its payment network in 2022.

💡Value Added Services

Value added services refer to additional products or services that a company offers to its customers, often to enhance the primary product or service experience. For MasterCard, these services include advisory analytics, data insights, and advanced cybersecurity services that provide extra value to banks, retailers, and even governments, beyond the core payment processing.

💡Two-Sided Network

A two-sided network is a business model that serves two distinct groups of customers, creating value through the interaction between these groups. In the case of MasterCard, the two sides are the cardholders and the merchants. The network effects are strong because once a critical mass of cardholders and merchants is reached, it becomes increasingly valuable for both sides to stay within the network, making it difficult for new competitors to enter the market.

💡Cross-Border Transactions

Cross-border transactions refer to financial transactions that involve parties from different countries, often involving currency conversion and international payment networks. MasterCard plays a crucial role in facilitating these transactions, providing a reliable and efficient payment method for global commerce.

💡B2B Payments

B2B, or business-to-business, payments refer to financial transactions between businesses, rather than between businesses and consumers. MasterCard has been investing in and expanding its B2B payment solutions, recognizing the vast potential of this market for streamlining and modernizing business financial operations.

💡Credit Card Competition Act

The Credit Card Competition Act is a proposed legislation aimed at enhancing competition among credit card networks by preventing exclusive agreements between merchants and any single network. If enacted, this law could disrupt the dominance of established networks like MasterCard and Visa, leading to a more competitive and diverse payment processing landscape.

Highlights

Mastercard is recognized as one of the world's most prominent brands with its famous slogan.

Mastercard is the second largest card network in the US, accounting for over a quarter of all purchase volume using a payment card.

Internationally, Mastercard was used for nearly a quarter of the over $624 billion spent using a payment card in 2022.

Mastercard is the most accepted card worldwide in terms of the number of countries it operates in.

As of May 2023, Mastercard had a market cap of over $360 billion, with shares nearly doubling in value over the past five years.

Mastercard has seen a ten-year CAGR of 20% post-financial crisis and pre-pandemic, which is extraordinary compared to the market overall.

Regulation is considered the biggest risk to Mastercard's business model due to its large enterprise size.

Mastercard was founded in 1966 as a direct competitor to BankAmericard, which later became Visa.

Visa and Mastercard dominate the payment network industry, accounting for 87% of market share in the US based on purchase volume.

Mastercard and Visa have a significant first mover advantage and incumbency effect, making it difficult for new competitors to enter the market.

Mastercard operates more like a toll operator, facilitating the transfer of payments between consumers, merchants, acquirers, and issuers.

The majority of Mastercard's revenue comes from interchange fees generated by their payment network, with an average of $0.30 on every $100 transaction.

Mastercard's value-added services include advisory analytics, data, cybersecurity, and advanced security-related services.

Despite its success, Mastercard has historically lagged behind Visa in company performance and market share.

Mastercard's stock has outperformed Visa's over the past five years due to faster top-line growth and margin expansion.

Mastercard has a stronger position in the international market, particularly in Europe, where it has gained significant market share.

Mastercard faces competition from American Express and Discover, as well as alternative forms of digital payments like digital wallets and account-to-account payments.

Mastercard has made strategic acquisitions and investments to focus on business-to-business payments, estimating the B2B payments industry to be worth $135 trillion.

The Credit Card Competition Act of 2022 could potentially disrupt the dominance of Visa and Mastercard if it becomes law.

Mastercard's future success is tied to its ability to continue expanding its network and providing valuable services to its customers.

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