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Investment Thesis
MasterCard is positioned for steady growth in the credit card processing industry due to a substantial growth in
online purchases, total transaction volume, and a global shift from cash payments to card payments. The growth of
digital wallets have aided the companys success with large corporations such as Apple, working directly with
MasterCard to ensure a safe transaction for all customers. The iconic brand, ranked 76 of all brand within the world,
has the second largest market share in the United States and is poised to grow in international markets both through
organic and inorganic growth.
Business Description
Industry Analysis
Landscape
Visa and MasterCard dominate the card payment industry. Visa, MasterCard, and their partners have spent billions of
dollars over decades to create their brands. While American Express and Discover are still industry competitors, they
do not have the same national and international presence of Visa and MasterCard. With billions of transactions
representing trillions of dollars processed every year, Visa and MasterCard possess unmatched scale that serves as a
barrier to entry for many competitors globally.
When analyzing market share, Visa is the leading provider in the United States and internationally. In the United
States, Visa controls 57.9% of volume compared to MasterCards 25.7%. American Express holds an 11.7% market
share within the United States and serves as the nations third largest card processing company in terms of volume.
Discover primarily operates within the U.S. with a 4.7% control of market share of total volume.
Outside of the United States, the order of the companies in regards to market shares stays constant in terms of ranking
in market share. Visa controls 56.6% of total volume compared to MasterCards 39%. American Express has a 4%
global reach and Discover has under 1% share.
Competitors
As stated above, MasterCards four main competitors include Visa,
Discover and American Express. While all own market share in the
U.S. and internationally, their business plans do differ. In general,
the global payments industry is highly competitive. MasterCards
programs compete against all forms of payment, including cash and
checks; electronic, mobile and e-commerce payment platforms;
cryptocurrencies; ACH payment services; and other payments
networks, which can have several competitive impacts on the
business as a whole.
First, the main competitor and opportunity for MasterCard going
forward is the cash and check aspect of payments. According to
MasterCards 10k, 85% of the world is still using cash or check
when making transactions. This number isestimated to
substantially decrease in the next five years due to card payments
growth, mobile payments, and the global acceptance of online
transactions. Banks continue to coerce consumers from using
checks and cash in an effort to automate and streamline the
processing of funds as much as possible.
After cash and check, the next tier of competitors are considered general purpose payment networks. This tier includes
the names mentioned above, including Visa, American Express and Discover, among others internationally. The
international names include networks such as JCB in Japan and UnionPay in China have leading positions in their
domestic markets.
Competitive Position
MasterCards business strategy is to grow, diversify and build. MasterCard is focused on growing the core business
globally in the coming years. The company looks to diversify its customer base in new and existing markets by
working with governments, merchants, technology companies and other businesses. MasterCards competitive
advantage lies within their brand name. Originally founded in 1966, MasterCard is one of the most trusted brand
names within the payment processing industry. With this industry footprint, MasterCard is able to have a highly
adaptable global acceptance network, which is one of the worlds fastest. Payment processing companies have
difficulty-gaining market share due to the fact that they must go through merchants. Within the card payment
industry, the only way a card is successful and attractive to merchants is if it is widely incorporated which is more
towards American Express business strategy. Visa and MasterCard directly work with the bank allowing for easier
market penetration and ultimately user friendliness. This is a direct advantage against American Express and
Discover, which are forced to work directly with merchants and are therefore exposed to credit risk that
MasterCard is shielded from.
Investment Positives
International Growth
The Credit Card Processing industry is
considered a mature market in the United
States. From 2012-2017, the market grew
at a rate of 4.1% and is projected to slow to
3.4% for 2017-2022. MasterCards business
and market share will continue to
maintain/grow slightly within the United
States, however international growth is key
for the company. MasterCard has been
acquiring global companies to gain
exposure in international markets.
In 2015, MasterCard acquired Applied Predictive Technologies (APT), a cloud-based analytics provider, for $600
million. APT's Test & Learn platform helps companies tailor investments using analytics. This deal adds to
MasterCard's strategy of delivering more services to merchants and fits with the 2014 acquisition of 5One, a retail
consulting and analytics firm.
In 2016, the company bought a 92% stake in UK-based payment processing firm VocaLink for some $920 million.
Europe presents a large opportunity for MasterCard in the coming years. In 2005, 82% of transactions were
completed with cash in Europe. In 2015, that number minimized to 71%. In 2020, it is estimated that cash
payments will only make up 60% of all transactions across Europe.
E-Commerce Sales
United States
Although the overall adaption growth of credit cards is slowing within the United States, the E-commerce market is
expected to substantially grow in the next five years. In 2017 alone, The National Retail Federation stated that total
retail sales would grow 3.7%-4.2%. E-commerce sales are estimated to grow 8-12%. Business Insider's premium
research service, forecasts that U.S. consumers will spend $385 billion online in 2016. Moreover, BI Intelligence
International
The worlds largest online market is China. Chinas growth is estimated to be staggering with ecommerce sales at
$750 billion in 2016 sales, coming from 460 million online shoppers, and projects a CAGR of 23% through 2020
nearly triple the rate of offline sales. Goldman Sachs increased its previous forecast for Chinese ecommerce sales in
2020 by 15% to $1.7 trillion, and upped its projection of online penetration that year from 22% to 25%, from 16%
currently. Chinas market thrives on fast-moving consumer goods with upgraded technology, which directly
translates to improving logistics infrastructure over the next few years. China is expected to have an additional 200
million online shoppers between 2017 and 2020.
The United Kingdom, France and Germany are the major ecommerce countries in Europe, contributing to 60% of
the total e-commerce. With 157.1 billion euros, the UK is leading when we look at the size of the B2C ecommerce
market, but in terms of the number of online shoppers, its Germany who has a greater market presence than their
British counterparts (51.6 million versus 43.4 million). Aside from the predicted 509.9 billion euros the industry is
expected to be worth in 2016, Ecommerce Europe also looked at the more distant future. For 2017 the organization
forecasts total online sales of goods and services being worth 598 billion euros, while in 2018 a total online revenue
of 660 billion euros is predicted.
Strategic Partners
MasterCard works with a variety of stakeholders including banks, governments, merchants and end users. MasterCard
provides financial institutions with solutions to help them increase revenue by driving preference for Mastercard-
branded products. The company provides data insights to improve business group and to help the customer.
MasterCard partners with technology companies such as digital players and mobile providers to deliver digital payment
solutions powered by technology, expertise and security protocols. MasterCard aids national and local governments
by driving increased financial inclusion and efficiency, reduce costs, increase transparency to reduce crime and
corruption and advance social programs. Ultimately, this business strategy provides a safe transaction for the user and
the financial institution. These strategic partnerships along with the continued developments of digital wallets will
help the company not only gain market share in the United States but also in international markets as well.
Investment Risks
Government Regulation
Government regulation influences key aspects of MasterCards business. MasterCard is subject to regulations that
affect the payments industry in the many countries in which the companys cards and payment devices are used.
Interchange fees associated with four-party payments systems like MasterCards are being reviewed or challenged in
various jurisdictions around the world via legislation to regulate interchange fees, competition-related regulatory
proceedings, central bank regulation and litigation. MasterCard may be subject to regulations related to our role in
the financial industry and our relationship with our financial institution customers. Aspects of our operations or
business are subject to privacy and data protection laws in the United States, the European Union and elsewhere
around the world. Overall, government regulation influences MasterCards business in legal and regulatory ways,
which directly affects the companys operations.
Consumer Spending
Consumer spending directly affects MasterCards business. In the event of a recession, growth can slow down and
even stop in some circumstances. Growth expectations with e-commerce and mobile payment applications have
been attributed with high growth rates in the coming years that can also adversely affect business in the event in an
economic slowdown.
Technology
Technology has aided growth in the past years for MasterCard but can also adversely affect growth in the future.
MasterCard would be negatively impacted if there were to be a new technology that eliminated the intermediary,
MasterCard, and ensured a safe transaction between the bank and end user in a more efficient manner. This risk is
more prevalent in China where their applications incorporate a wider array of functions with all-in-one
applications.
transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external
parties. These threats may derive from fraud or malice on the part of our employees or third parties, or may result
from human error or accidental technological failure. These threats include cyber-attacks such as computer viruses,
malicious code, phishing attacks or information security breaches.