Stock Breakdown Newsletter: Mastercard - $MA

Is it 'Priceless'?

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Newsletter Date: AUG, 2024

Ticker Symbol: MA
Stock Price: $465
Website: https://www.mastercard.us/en-us.html
Headquarters: Purchase, New York
Incorporated: 1966
Investor Relations: https://investor.mastercard.com/overview/default.aspx

PART 1: The Business

Overview

Mastercard provides transaction processing and other payment-related products and services in the United States and internationally. The company offers integrated products and value-added services for account holders, merchants, financial institutions, digital partners, businesses, governments, and other organizations.

Mastercard financial services enables issuers to provide consumers with credits to defer payments; payment products and solutions that allow its customers to access funds in deposit and other accounts; prepaid programs services; and commercial credit, debit, and prepaid payment products and solutions. It also provides solutions that enable businesses or governments to make payments to businesses, including Virtual Card Number, which is generated dynamically from a physical card and leverages the credit limit of the funding account; a platform to optimize supplier payment enablement campaigns for financial institutions; and treasury intelligence platform that offers corporations with recommendations to enhance working capital performance and accelerate spend on cards.

Mastercard Send partners with digital messaging and payment platforms to enable consumers to send money directly within applications to other consumers; and Mastercard Cross-Border Services enables a range of payment flows through a distribution network with a single point of access to send and receive money globally through various channels, including bank accounts, mobile wallets, cards, and cash payouts. Further, it provides cyber and intelligence solutions; insights and analytics, consulting, marketing, loyalty, processing, and payment gateway solutions for e-commerce merchants; and open banking and digital identity services.

The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus name.

Number of employees = 33,400

How does the company make money?

The company makes money by processing payment transactions and taking a fee. The business also offers financial services like data related to payment processing.

Who is the target customer for this business?

The target customer for this business is banking institutions and business owners.

History

1940’s

The history of Mastercard goes back to the 1940’s when U.S. banks began using plastic cards for transactions as a replace for all cash transactions.

When was the company founded?

The Mastercard business was founded in 1966.

1960’s

During that year a group of banks in California formed the Interbank Card Association (ICA) in response to the growing success of BankAmericard (later Visa). This marked the birth of Mastercard.

The founding members included United California Bank, Wells Fargo, Crocker National Bank, and the Bank of California. The ICA was established as a not-for-profit membership association, aiming to facilitate interbank cooperation in the issuance of credit cards and the processing of transactions.

In 1969 the ICA collaborated with the Eastern States Bankcard Association (ESBA) and introduced the "Master Charge: The Interbank Card." This move consolidated several regional bankcard programs under a unified national brand. The original Master Charge logo featured two interlocking circles—one red and one orange—with the words "Master Charge" overlaid.

1970’s

The 1970’s began Mastercard’s international expansion. During this decade they formed alliances with foreign banks and financial institutions. This period saw the brand establishing its presence in Europe, Asia, and other regions.

In 1973 year Mastercard introduced the magnetic stripe on cards, which allowed for faster and more secure transactions at point-of-sale terminals.

In 1979 "Master Charge" was rebranded as "Mastercard." This change reflected the company's expanding global footprint. The magnetic stripe stored essential cardholder information, enabling electronic reading and reducing the need for manual imprinting of card details, which was common at the time. This development played a crucial role in the widespread adoption of credit cards and set the stage for further innovations in payment technology.

1980’s

• 1985: Mastercard acquired Cirrus, a global ATM network, enabling cardholders to access cash worldwide.

1990’s

• 1991: The Maestro debit card system was launched, allowing consumers to make direct debit payments at point-of-sale terminals globally.

• Antitrust Lawsuits:

  • 1996: The U.S. Department of Justice filed an antitrust lawsuit against Mastercard and Visa, alleging that their competitive practices stifled competition. This case, known as the "Wal-Mart case," culminated in a ruling against the card associations in 2001.

• "Priceless" Advertising Campaign:

  • 1997: Mastercard launched its iconic "Priceless" advertising campaign, which emphasized the intangible value of experiences over material purchases. The campaign became globally recognized and contributed significantly to brand awareness.

2000’s

When did the company go public?

The Mastercard stock went public on the NYSE on May 25, 2006, selling 95.5 million shares at $39/shares.

• Initial Public Offering (IPO):

  • 2006: Mastercard transitioned from a membership-owned association to a publicly traded company. The IPO raised approximately $2.4 billion, marking one of the largest U.S. IPOs at the time. The company's shares began trading on the New York Stock Exchange under the ticker symbol "MA."

• Corporate Restructuring:

  • Post-IPO, Mastercard underwent significant corporate restructuring to streamline operations and adapt to the demands of public ownership.

• Legal Settlements:

  • 2003: Mastercard and Visa reached a settlement in the Wal-Mart case, agreeing to pay over $3 billion in damages and modify certain business practices.

2010’s

• Contactless Payments:

  • 2010s: Mastercard introduced contactless payment solutions, allowing consumers to make payments by tapping their cards or mobile devices on compatible terminals. This technology, branded as "PayPass," facilitated faster and more convenient transactions.

• Digital Wallets:

  • 2013: The company launched "Masterpass," a digital wallet solution enabling consumers to store payment information securely and make purchases online or in-app with ease.

• Mobile Payment Collaborations:

  • Mastercard partnered with major tech companies to integrate its payment solutions into mobile platforms:

    • Apple Pay (2014): Integration with Apple's mobile payment service.

    • Samsung Pay (2015): Collaboration with Samsung's payment platform.

    • Google Pay (2015): Partnership with Google's payment service.

• Security Enhancements:

  • EMV Chip Technology: Mastercard promoted the adoption of EMV chip technology in cards to enhance transaction security and reduce fraud.

  • Biometric Authentication: The company explored biometric solutions, such as fingerprint and facial recognition, to bolster payment security.

• Acquisitions:

  • Mastercard acquired several companies to diversify its offerings and strengthen its technological capabilities:

    • Vocalink (2017): A UK-based payment systems company specializing in bank account-based payments.

    • NuData Security (2017): A firm specializing in behavioral biometrics and fraud detection.

    • Transfast (2019): A global cross-border payments network.

2020 - Beyond

• Response to the COVID-19 Pandemic:

  • 2020: The pandemic accelerated the shift towards digital and contactless payments. Mastercard responded by increasing contactless payment limits and promoting digital payment solutions to reduce physical contact.

• Cryptocurrency and Blockchain:

  • 2021: Mastercard announced plans to support select cryptocurrencies directly on its network, facilitating transactions in digital currencies.

  • Acquisitions: The company acquired firms specializing in blockchain analytics and cybersecurity to navigate the evolving digital currency landscape.

• Open Banking:

  • Mastercard invested in open banking initiatives, enabling consumers to securely share their financial data with third-party providers to access a broader range of financial services.

• Biometric Checkout Program:

  • 2022: The company launched a pilot program for biometric checkout, allowing consumers to authenticate payments using facial recognition or fingerprints at point-of-sale terminals.

• Market Reach:

  • As of 2023, Mastercard operates in over 210 countries and territories, connecting consumers, financial institutions, merchants, governments, and businesses worldwide.

What could the future of this business look like?

It seems like the future of every business right now is being shaped by the adoption of AI - Artificial Intelligence. The future of Mastercard will be impacted by AI. Mastercard takes in an enormous amount of consumer spending data from their cards. Transaction volume is a metric the business is always laser focused on.

Digital payment services

Mastercard will continue to expand into the digital payments space. This includes contactless payments, digital wallets, payment apps. Mastercard evolved their Masterpass product to ‘Click to Pay’ which is a service that allows the consumer to checkout faster on their smartphone and online.

Cryptocurrency - Blockchain

Mastercard is likely to deepen its involvement in the cryptocurrency space. By supporting select cryptocurrencies on its network, Mastercard is positioning itself to be a key player in the evolving digital currency landscape. The company may also explore further blockchain applications beyond payments, such as supply chain management and digital identity.

AI - Machine Learning

Mastercard is expected to invest heavily in AI and machine learning to improve fraud detection, enhance customer experiences, and personalize services. AI-driven insights will also help businesses make better decisions based on consumer spending patterns and preferences.

Mastercard could also develop software/services to offer as a subscription service which could provide a variety of business services; security monitor, loyalty programs, business spending analytics etc.

Global Expansion - businesses, NGOs and governments

There are still plenty of businesses and places that Mastercard can expand into. Their banking network and brand is already strong and this could lead to more adoption of transaction services from businesses particularly in emerging markets.

Data analytics - loyalty programs and business data analysis

The company may enhance its loyalty and rewards programs by leveraging data analytics to offer personalized incentives and experiences. This could involve partnerships with retailers, travel companies, and other consumer-focused businesses.

New Payment Models

Mastercard may explore new payment models, such as subscription-based services, embedded finance, and decentralized finance (DeFi). These models could offer new revenue streams and further embed Mastercard's solutions in the daily lives of consumers and businesses.

Partnerships and Acquisitions - potentially in fintech, security and data analytics

Open Banking - Mastercard is likely to expand its open banking initiatives, enabling consumers to securely share their financial data with third-party providers. This will foster innovation in financial services, such as personalized lending and investment products.

Products - Services

Payment Cards

• Credit Cards:

  • Mastercard credit cards allow consumers to borrow funds for purchases, with the ability to pay back over time, often with interest. These cards are issued by various financial institutions and offer different benefits, such as rewards, cashback, and travel perks.

• Debit Cards:

  • Mastercard debit cards are linked to a consumer’s bank account, allowing them to make purchases using their available funds. Transactions are deducted directly from the account, making it a convenient and secure payment option.

• Prepaid Cards:

  • Prepaid Mastercard cards are preloaded with a specific amount of money. They can be used for purchases until the balance is exhausted. These cards are popular for budgeting, gifting, and as a safer alternative to carrying cash.

• Commercial Cards:

  • Mastercard offers various commercial cards designed for businesses, including corporate cards, purchasing cards, and small business cards. These products help businesses manage expenses, streamline procurement, and access detailed reporting.

Digital Payments

• Masterpass:

  • A digital wallet service that allows consumers to store payment information securely and complete online and in-app transactions quickly. Masterpass has been integrated into newer platforms like "Click to Pay."

• Click to Pay:

  • A unified digital checkout solution developed in collaboration with other major payment networks. Click to Pay simplifies online shopping by offering a consistent and secure checkout experience across participating merchants.

• Mobile Payments:

  • Mastercard supports mobile payment solutions like Apple Pay, Google Pay, and Samsung Pay, allowing consumers to make contactless payments using their smartphones or wearable devices.

• QR Code Payments:

  • Mastercard provides QR code-based payment solutions, enabling consumers to scan QR codes with their mobile devices to make secure payments. This is particularly popular in emerging markets.

Contactless Payments

• Contactless Cards:

  • Mastercard contactless cards allow consumers to make payments by tapping their card on a compatible terminal, providing a faster and more convenient way to pay, especially for small transactions.

• Wearable Payments:

  • Mastercard has partnered with technology companies to enable payments through wearable devices, such as smartwatches and fitness trackers, equipped with contactless payment functionality.

Loyalty and Rewards Programs

• Priceless Cities:

  • A program offering exclusive experiences, offers, and benefits to Mastercard cardholders in various cities around the world. These can include dining, entertainment, and travel experiences.

• Rewards Programs:

  • Many Mastercard credit cards offer rewards programs that provide cashback, points, or miles for purchases. These rewards can be redeemed for various goods, services, or travel.

Security and Fraud Prevention

• EMV Chip Technology:

  • Mastercard cards come equipped with EMV chip technology, which provides enhanced security for card-present transactions by generating a unique code for each transaction.

• Tokenization:

  • Mastercard uses tokenization to replace sensitive card information with a unique digital identifier (token) during digital transactions, reducing the risk of fraud.

• Biometric Authentication:

  • Mastercard supports biometric authentication methods, such as fingerprint and facial recognition, to enhance security for online and mobile payments.

• Cybersecurity Solutions:

  • Mastercard offers a range of cybersecurity services, including fraud detection and prevention tools, identity verification solutions, and cyber threat intelligence.

Data and Analytics Services

• Advisors:

  • Mastercard Advisors provides data-driven consulting services to businesses and governments. The services include analytics, market research, and strategic advice to help clients make informed decisions.

• Decision Intelligence:

  • A suite of AI-powered tools that help financial institutions and businesses optimize decision-making processes, such as credit risk assessment and fraud detection.

Open Banking Solutions

• Mastercard provides technology and services that enable secure sharing of financial data between consumers, businesses, and third-party providers. This fosters innovation in financial services, such as personalized financial products and services.

Cross-Border and B2B Payments

• Cross-Border Payments:

  • Mastercard offers solutions for cross-border payments, enabling businesses and consumers to send and receive money internationally. These services are designed to be fast, secure, and cost-effective.

• B2B Payment Solutions:

  • Mastercard provides payment solutions for businesses, including virtual cards, commercial cards, and automated accounts payable services, which streamline and secure B2B transactions.

• Remittance Services:

  • Through partnerships with remittance companies, Mastercard enables cross-border money transfers, allowing people to send money to friends and family in other countries.

Developer/Innovation Platforms, AI, Blockchain, Cryptocurrency

• Mastercard Developers:

  • A platform that offers APIs and development tools for businesses and fintechs to build and integrate Mastercard’s payment solutions into their own products and services.

• Innovation Labs:

  • Mastercard operates innovation labs where new technologies and payment solutions are developed and tested.

• Blockchain - Cryptocurrency

  • Mastercard is exploring blockchain technology to enhance transparency, security, and efficiency in payments and beyond. Blockchain can be used for everything from cross-border transactions to supply chain management, providing a tamper-proof record of transactions.

  • Mastercard has integrated select cryptocurrencies into its network, allowing cardholders to use digital currencies for payments where Mastercard is accepted. AI and machine learning are essential for managing the volatility and risk associated with cryptocurrencies, ensuring secure and efficient transactions.

• AI-Driven Fraud Detection and Prevention

  • Decision Intelligence: Mastercard's Decision Intelligence platform uses AI and machine learning to analyze vast amounts of transaction data in real-time. It can detect patterns and anomalies that indicate potential fraud, allowing for proactive intervention. This system helps reduce false declines and ensures legitimate transactions are processed smoothly.

  • Brighterion AI: Brighterion, a Mastercard company, provides AI and machine learning solutions for fraud prevention and risk management. Its AI technology can analyze transactions in milliseconds, identifying potential fraud and scoring risk with high accuracy. Brighterion’s AI is used across multiple sectors, including finance, healthcare, and government, to enhance security and efficiency.