Thursday, November 3, 2011

MasterCard in the payment processing industry


MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the Purchase, Harrison, New York.Its primary business is to process payments between the banks of merchants and the card issuing banks or credit unions of the purchasers who use the "MasterCard" brand debit and credit cards to make purchases.

In the year 2010, MasterCard reported revenues of about $5.5B , Net Income of $1.8B and Operating Margin of about 49.7%. MasterCard generates revenue by charging fees to their customers for providing transaction processing and other payment-related services and by assessing it's customers based primarily on the dollar volume of activity, or gross dollar volume (“GDV”).The reported GDV for the year 2010 was $2.7T. MasterCard had about 2.6 B cards in use in the year 2010.

Competitive Bench-marking
MasterCard primarily competes against AmericanExpress, Discover and Visa. MasterCard has market cap of about $45 B as compared to $58B for AmericanExpress , $12.95B for Discover and $62.82 B for Visa. MasterCard's quarterly revenue growth in the year 2010 was about 22% which was second only to Visa which had a quarterly growth of about 70%. MasterCard's operating margin is 51 % as compared to 57% for Discover and 59% for Visa.

Relationships and their Implications for MasterCard

The figure on the right displays MasterCard's Ecosystem.

This ecosystem comprises of Financial Institutions , Telecom Companies, eCommerce Platforms, Mobile Platforms, Merchants , Government Agencies and Transit Authorities.
If MasterCard wants to survive and grow it must forge alliances and relationships with key players in the ecosystem. As we will see in the next sections, some very interesting relationships have emerged in this ecosystem which are giving birth to innovative business models and services thus creating greater value for the customers.

MasterCard - Google : Google Wallet

Google Wallet is an app jointly developed by Google and MasterCard which lets users pay for goods by tapping their mobile phones against special wireless readers which are powered by MasterCard's contactless "PayPass" technology.The app works via "Near Field Communciation" technology. In the early trial stages some users wanted to know where they can use Google Wallet and MasterCard's PayPass locator helped figure out the locations by displaying PayPass locations on the google maps. The app’s official launch gives Google an edge over the crowd of companies angling for a share of the emerging mobile commerce/payments market.This technology gives Google a head start in the mobile commerce market and MasterCard drives more Gross Dollar Volume. Its a win win situation for both.

Standard Chartered, MasterCard and Airtel Join Hands in Africa

Airtel Kenya subscribers can now use their mobile phone devices to transact all forms of businesses from paying utility bills to boarding Trotros (commercial vehicles) in the country.
The latest mobile innovation - the result of a partnership between Airtel Africa, MasterCard International and Standard Chartered - will enable airtel money subscribers in Kenya to buy products online for the first time. PayOnline allows customers of airtel money to buy goods from a wide range of Master Card merchants online, without needing a debit or credit card. Using funds from their “mobile wallets,” they can request a single use card number. The number expires 24 hours if not used, protecting customers against online phishing, making this arguably the safest method to shop online. Currently exclusive to airtel money customers in Kenya, the virtual card is expected to launch in other African markets.

This partnership gives MasterCard an opportunity to grow into fast emerging mobile commerce space and a foothold in emerging markets. A successful implementation of this service would imply MasterCard can replicate this model across other emerging countries including BRIC in partnership with telecommunication operators and banks.

NJ Transit and Master Card join hands to drive a better commuter experience

MasterCard in conjunction with NJ Transit launched PayPass pilot program in June 2010 to test if people like using a single debit/credit card to move between NJ Transit, the PATH, and the MTA. This new program is contactless—commuters simply tap their MasterCard PayPass card at sensors in the transit systems, and get billed accordingly. Out of this relationship MasterCard gets a higher GDV and commuters gets a better commuting experience.

Network Map
Lets see what the map of all these relationships looks like.

It is important to look at this relationship map from the perspective of overall growth strategy for MasterCard. MasterCard wants to focus on three key areas for growth :
  1. Online or eCommerce
  2. Mobile Commerce
  3. Growth in emerging markets
Its relationships with Google and DataCash is formed with the objective to drive its online or eCommerce business. Its relations with Google in Google Wallet is formed with the objective of capturing the mobile commerce market, its relationships with Airtel Africa in kenya is formed with the objective of leveraging the growth and exploiting the full potential of emerging markets.

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