There are some things money can’t buy. For everything else, there’s Mastercard.
If you go through your wallet right now and can find a card shining with the red and orange conjoined circles logo, there’s proof of the success of Mastercard, a tech and financial services company.
Founded on 16th December 1966 and headquartered in New York, U.S.A, the company has furthered the idea of plastic money, an idea that has encompassed the world of today.
As countries and communities aspire to go paperless, transactions through the Mastercard only require one thing - a plastic card.
Mastercard’s strategy was simple. It concerned 4 entities: the consumer, their bank, the merchant, and its bank. The company made huge profits by charging these banks connectivity, processing, and switching fees.
The company’s success can be measured by a look at the following statistics from 2020:
- Annual revenue of $15.3 billion
- Net income of $6.4 billion
- More than 21,000 employees globally
- Total transaction volume exceeding $6.3 trillion
- Offers service in 150+ currencies
- Expanded to over 210 countries
For a company that envisioned a cashless future, Mastercard has come a long way in promoting its cause. However, the journey has been anything but simple.
Read ahead to know how the company began and reached the heights it stands at today.
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Early Days of Credit Cards
Undoubtedly, MasterCard is one of the biggest financial services and payment solutions companies in the world. However, it did not acquire success overnight. Therefore, it is necessary to understand the dynamics of the market before MasterCard stepped in and what circumstances surrounded its launch to get a better idea of the company’s growth.
The Beginning of Credit Cards
Credit isn’t something that has recently become common around the world. In fact, it has been around since some of the oldest civilizations. Some of the first recorded instances date back to 3500 BC when people in the summer season acquired loans for agricultural purposes.
With time, as the credit process became more widespread, it started to become documented with rules and regulations. In 1800 B.C, in Babylon, the Code of Hammurabi was formalized with specific terms of loans. Now, fast forward to almost two millennia later, in the mid 20th century, the system of credit was set to undergo one of its most revolutionary transformations.
In 1950, Diner’s Club launched the first charge card applicable in a limited group of restaurants and diners. The difference between a charge card and what would later be introduced as a credit card was that the cardholder did not have to pay interest at the time of repaying the amount of credit. Due to the Diner’s Club’s card’s success, other firms also sought to enter this new market and try their luck at this system of credit.
The most prominent early bird in the industry, BankAmerica, jumped on the scene in 1958 in a rather spectacular fashion. In order to popularize their credit card, the BankAmericard, they dropped thousands of it to residents of Fresno – this would be famously known as the Fresno Airdrop. While the tactic did accelerate the use of credit cards, it turned out to be a disaster with many users defaulting in payments. However, BankAmericard persisted with the product and responded strongly.
Interestingly, although eventually, the BankAmericard proved a huge success, BankAmerica kept the numbers under wraps to not provide new entrants any sort of encouragement. Thus, from 1958 to 1966, there were few competitors and BankAmerica enjoyed a comfortable leadership position. However, in 1966, this was all about to change.
The Interbank Card Association (ICA)
By 1966, BankAmerica became so profitable that it could no longer keep its success hidden. Thus, as soon as other banks saw the immense potential in this upcoming industry, they wanted to set up their own credit cards.
However, these banks could not simply step into the market. There were various obstacles created by regulatory bodies. For instance, in 15 US states, the concept of branch banking was prohibited. Therefore, banks in these states were unit banks or in other words, banks located at only one site.
Eager to find a way out of these restrictions and capitalize on the credit card boom, these small banks embraced the concept of regional associations. This allowed these banks to enjoy economies of scale and consolidate a much larger network of merchants and customers. On the customer side, cardholders could utilize the service conveniently, across the country.
The Interbank Card Association was the result of a similar regional alliance. United California Bank, Wells Fargo, Crocker National Bank, and Bank of California joined forces to form this association. Several years later, the Interbank Card would go on to become the popular MasterCard.
Interbank Goes International
Although BankAmericard had a head start, the members of the Interbank Association were determined to catch up. So, in 1967, seventeen bankers from around the company met in Buffalo, New York to formally charter the Interbank Card Association and ensure reciprocal acceptance of their credit cards.
Thus, the new Interbank Card was marked with a small “i” at the bottom right corner while the banks maintained their designs for the rest of the card. However, soon the association realized that the “i” logo would not be sufficient to build the national and international reach it was hoping for. Interbank was already planning to foray into the international market and by 1968, it had made its presence known by allying with Banco Nacional in Mexico. In the same year, Interbank was partnering with banks in Europe and Japan.
It was high time that the company established an identity that resonated globally and kept up with Interbank’s progress. Therefore, as early as 1969, the association made some of the most instrumental changes to the design of the card and its image. Here is when the logo was changed from just the “i” to two overlapping circles - one yellow and one orange. This was acquired from the Western States Bankcard Association’s logo.
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The other very significant change was the adaptation of the brand name, Master Charge: The Interbank Card. First National City Bank, who had joined the association the same year, had merged their Everything Card with Interbank’s card, and hence, are credited with coming up with a new name. Now, MasterCard was well and truly on its path to becoming a global financial services giant.
Key Takeaway 1: Collaboration Helps Overcome Hurdles
The unit bank restriction in 15 US states meant that no bank could compete with the BankAmericard. However, every other bank knew adding nationally accepted credit cards to their portfolio was not something they could miss out on.
Thus, realizing that by working together and forming associations, they could together increase their customer base and broaden their network, a group of banks came together to establish the Interbank Card Association. This move proved immensely successful with the association not only capturing local markets but also venturing into markets in different continents.
The Coming of MasterCard
Following a successful launch in the international arena, Interbank was ready to enhance its Master Charge’s offerings and make it a must-have product for every person.
Innovation & Advancements
While Interbank was expanding its operations in the UK, Africa, and Australia in the 1970s, it was also constantly working on improving its technological aspects to ensure safe and smooth transactions of such a scale.
One of the first developments was the Interbank National Authorization System (INAS) in 1973. This was the first computerized authorization and clearing system which completely transformed how credit card transactions were carried out. Previously, transactions had to be authorized to telephone confirmations! To further integrate and accelerate the process, the following year, Interbank started adding magnetic stripes on the back of its cards. This allowed better tracking and deterred fraudulent activity.
Of course, ICA wasn’t going to stop there. Its team was continually looking for ways to speed up the transaction process and make it as convenient as possible. Resultantly, in 1975, it introduced another groundbreaking system, Interbank Network for Electronic Transfer (INET). Like the INAS before it, the INET’s purpose was to digitize credit card communication between card-issuing banks. Before it, banks would have to mail credit card slips and invoices, with the procedure prone to lags and errors.
From Master Charge To MasterCard
The technological progress made by Interbank’s Master Charge was truly remarkable. However, its main rival, BankAmericard, renamed Visa in 1977, was still leaps and bounds ahead. This was because even though most banks in the US issued both Visa and Master Charge, BankAmericard had been much more successful in establishing a global identity before it became Visa.
Trying to replicate Visa’s growth, Interbank rebranded its card once more and named it MasterCard. The idea was to reflect the growing global nature and offerings of the brand. However, within the US, MasterCard has a difficult time convincing banks that the new look would make a difference. Whereas, Interbank’s foreign operations that were scattered through various joint ventures were more productively consolidated by the change.
Changing Approach
In 1980, Interbank’s senior management felt that in order to catch up with Visa and solidify its position as a global force, it needed to make significant changes to its approach. Thus, to take this idea forward, they selected Russel E. Hogg, an experienced executive who had been associated with Macmillan Inc. and American Express Company previously.
Immediately, he set about making several key changes. Firstly, he targeted the company’s organizational system. ICA had been operating with a hierarchical structure, which often resulted in communication gaps and a disconnect between employees and senior staff. Instead, he reorganized the company in a way that there be horizontal reporting, enabling faster inter-firm communication.
The second, and perhaps, more notable change that Hogg brought about was diverting focus towards international operations. Of course, it was always high on the company’s agenda to add more international customers; however, Hogg took the intensity to the next level. He believed that the US market had reached or was nearing its saturation point, thus, there was no sense in investing resources domestically. Not only did he eliminate divisions dedicated to it, but he also downsized some of the highest-ranking officers!
Key Takeaway 2: Improvement is a Continuous Process
One of Interbank’s key focuses has been to make its transactions faster, more secure, and more convenient. Accordingly, it launched a series of developments, such as INAS and INET, to serve this purpose, making it one of the first companies to go digital with its procedures.
When the company felt that its structure was hindering its progress, it sought to make radical changes and improve its communication between staff and management. These improvements, whether in the product it offered or the way it operated, enabled Interbank to progress according to the need of the time and maintain its competitiveness in the market.
Expanding Around The World
With the changes made by Hogg, MasterCard was now set for a new phase of growth and in the following years, the company explored multiple new avenues.
Hogg’s Era
Under Hogg, the company explored innovative ways to make MasterCard more attractive to international customers. Thus, in 1981, for the first time, it explored market segmentation, offering Traveler’s Cheques and the Gold MasterCard. Two years later, the company also introduced the Emergency Card Replacement Program.
Meanwhile, MasterCard did not lag behind in enhancing its security systems. In fact, it even added a laser hologram feature to limit the possibility of fraud. Then, in 1984, Hogg oversaw the launch of Banknet, an advanced and integrated system of the INET and INAS. This made it much simpler and safer to authorize global transactions.
Furthermore, identifying the potential in affinity cards in Asian markets, MasterCard launched the BusinessCard for international customers. By this point, there were over 120 million users of MasterCard globally. However, Hogg was determined to increase this number, particularly in Asia.
Consequently, in 1986, MasterCard opened its offices in Hong Kong, the first in the region. Of course, the aim was to penetrate further and so it did in the following year by becoming the first credit card in the People’s Republic of China. By 1988, MasterCard had already issued more than 20 million cards in the Pacific Rim and was going strong.
Meanwhile, another move in Hogg’s international plan was the $34 million purchase of the world’s largest ATM company, Cirrus. Moreover, the company acquired a 15% stake in EuroCard as well as set foot into the Soviet Market.
Unfortunately, these were the last of Hogg’s achievements as company president before objections about his aggressive strategies compelled the board of directors to replace him.
ATMs and World Cups
Alex W. Hart succeeded Hogg as the president of the company, seeking to bring a little more stability to MasterCard’s global operations. He established a regional board of directors to help oversee operations in their respective continents. Moreover, he initiated a card processing system to allow MasterCard’s to be issued inexpensively and conveniently through microcomputers.
In 1990, Hart also capitalized on the purchase of Cirrus by establishing the MasterCard ATM network and combining the two to form an even larger network. At the time, this network was located at 50,000 different sites around the world.
Moreover, driving forward the ambition for global recognition, in 1990, MasterCard also became an official sponsor of the Soccer World Cup. The move turned out to be a hit, with the company continuing to sponsor several soccer matches and tournaments over the course of the next few years.
MasterCard’s Debit System
Many of MasterCard’s tactics were determined by keeping an eye on Visa’s strategies. For instance, Visa established its Interlink debit system which allowed point-of-sale debit transactions. In response, MasterCard introduced the Maestro which was developed on the same technology and served the same purpose.
Unfortunately, Interlink was far too well set to be troubled by the competition. By 1993, there were more than 16 million Interlink cardholders while Maestro did not even have one million users. This also led to the end of Hart’s tenure at the helm of years.
The following years - the late 1990s - proved to be more successful for MasterCard. In 1997, its services were being offered in 220 countries and offices set up in 30 countries. The business was generating in excess of a billion dollars in revenue with nearly 350 million MasterCard’s in circulation.
Key Takeaway 3: Explore Multiple Ways To Increase Brand Recognition
By the end of the 20th century, it was clear that the companies leading the global credit card industry by a very clear margin were Visa and MasterCard. MasterCard particularly has employed various tactics to expand its global outreach. From targeting the untapped Asian market specifically to sponsoring some of the largest sporting events, it kept pace with its competitor’s growth.
Even though Maestro was not an immediate success, it ensured that the debit domain was also not left uncapitalized by MasterCard. Hence, it not only managed to give its competitor a tough time but also experienced a significant surge in profits while doing so.
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MasterCard In The 2000s
With cashless payments and digitizing becoming the norm, MasterCard entered the 2000s on a high with aims to reach even higher. Up till the 2000s, most of MasterCard’s acquisitions and mergers had been of a smaller scale even though it had made several notable alliances. This decade saw a change in that trend.
Europay + MasterCard
MasterCard merged with EuroPay International to become MasterCard International in 2002. EuroPay was one of the largest credit card issuing corporations in Europe meaning The MasterCard + EuroPay merger cemented MasterCard’s dominance in the European Market. It allowed the newly formed company to deliver its services to a larger global audience while catering to the specific customer base of Europe with a more local and flexible approach.
Furthermore, the move allowed the company to enjoy a significant reduction in costs by leveraging economies of scale and speeding up its transactions by effective decision making. Thus, MasterCard became the clear leader in payment systems in the region.
Initial Public Offering
In 2006, the company underwent a major change by enlisting on the stock market through an initial public offering, putting up more than 95 million shares at $39 each. This also resulted in another rebranding with the company becoming MasterCard Worldwide and adding a third circle to its logo. By merely adding the term “Worldwide” to its name, the company now signified a new, global approach, and consequently, a worldwide clientele. To solidify its fresh, new start, MasterCard also introduced a new tagline: The Heart of Commerce.
The Digital Decade Led By Ajay Banga
In 2009, reeling from the global financial crisis, MasterCard was looking for a new CEO to lead the company from the turmoil into a digital future. This is when the company hired Ajay Banga, a Citigroup executive.
MasterCard’s core strategy at this crucial juncture was not only to compete and win against Visa and American Express but against cash, which accounted for almost 80% of the retail payments around the globe. By understanding why, how, and where cash was being used, MasterCard was able to put in place an effective strategy to win.
It was clear that the world was foraying into digital services in the 2010s faster than it has ever embraced any technological advancement. Hence, MasterCard had to win in the core payment space by giving people what they wanted: an easy, intuitive, fun, and secure way to pay however they wanted – account-to-account by credit, prepaid card, debit, or any other way.
To make this possible, MasterCard embraced emerging technologies and strived to build cutting-edge tools to make the use of technologies more seamless and safer. Plus, MasterCard diversified by expanding into cybersecurity and data analytics to add substantial value to its core payment offerings. Last but not the least, MasterCard doubled down on financial inclusion, ensuring everyone had access to vast choices in payments.
Over the years, MasterCard took big bets on technologies that it identified would be pivotal to its future and stuck by them through thick and thin. It invested in building its data and analytics, cybersecurity, e-commerce, artificial intelligence, and machine learning capabilities.
In 2010, it added e-commerce services to its portfolio by acquiring DataCash. Then, in 2012, it rigorously pursued mobile contactless payment systems in the Middle East and by 2014, it was already settled in the mobile wallet arena through collaborations with Apple.
Continuing the same approach, MasterCard invested in Artificial Intelligence and Machine Learning by acquiring Brighterion.
MasterCard also set an ambitious goal of bringing 500 million unbanked people into the digital economy by 2020 (it successfully achieved this goal) and set the bar even higher by targeting to reach one billion people by 2025.
It not only helped commercial entities transact with more choice and efficiency but also made it fun and convenient for people – particularly youth – to pay for goods and services. From redesigning the debit card and adding exciting new features to coming up with innovative ways to pay such as scanning bar codes from phones, MasterCard left no stone unturned in transforming payment systems.
What made MasterCard immensely successful was not that it transformed its strategy, structure, and product but also how it revolutionized and changed the company culture and invested in talent. Supporting and empowering employees through stock ownership programs, above-market retirement savings contributions and vesting schedules, and key learning and development opportunities paid off.
Plus, MasterCard’s financial inclusion commitments and prioritizing the people and the planet such as pledging $250 million to support small businesses during the Covid-19 pandemic and encouraging environmentally friendly spending behavior among customers helped it stand out and win the trust of customers worldwide.
Ajay, over the course of a decade, took Mastercard from a credit card business to a payment technology multitasker and financial behemoth. In the process, he delivered a whopping total return of 1581% to shareholders, tripled company revenues, increased net income by six times, grew the market capitalization from $26.5 billion to $300 billion, making MasterCard the 21st most valuable company in the world – up from number 256 when he took over.
As agreed with Ajay prior to him even taking the job as the CEO, the new CEO was to be hired 10 years down the line. Ajay helped with the selection and grooming of the next person for the top job, Michael Miebach, a veteran Mastercard executive who officially took charge in January 2021.
MasterCard Going In A New Direction
In the quest to enhance capabilities as consumers and merchants demand better payment options, MasterCard is now making a bold move by focusing on the business-to-business (B2B) market.
MasterCard has identified B2B payments as an extremely important opportunity for growth. Hence, it is doubling down on it even if that means diverging from its main competitor, VISA, which continues to focus on improving the ways payments are made among consumers and merchants.
Putting its money where its mouth is, MasterCard is also taking a different technological strategy by focusing on and owning automated clearing house (ACH) rails that are key for tackling B2B payments.
From acquiring VocaLink Holdings Ltd. in 2017 that possessed software to run on real-time payments networks to buying Nets A/S’s account-to-account payment business in 2019 to add instant payment services to its portfolio, MasterCard has taken a number of steps to build B2B capabilities.
All along, the focus is on digital transformation, harnessing the power of data and technology, and alleviating risks to make payments safer and securer. This is evident from the acquisitions of fraud detection startup, Ethoca Ltd., cybersecurity startup RiskRecon Inc, fintech firm, Arcus, open banking technology provider, Aiia, and cutting-edge personalization platform and decision engine company, Dynamic Yield.
Key Takeaway 4: Don’t Be Afraid To Take Bold Decisions
MasterCard set an excellent example of how a company can alter its approach to meet its goals. Before the 21st century, mergers and stocks had not been its avenue for growth. However, given the situation, it did not shy away from making major changes when the time came.
Similarly, after the financial crisis, MasterCard realized it was time to change things around. Hence, not only did the company change the leadership but also embraced tech. The new CEO, Ajay Banga led MasterCard from the front and transformed every aspect of the business, right from the strategy, structure, and product to talent and culture. Safe to say, his decade at the helm proved to be quite fruitful for the company and made MasterCard a force to be reckoned with.
Now, MasterCard is yet again making a bold move of venturing into the B2B payments space, diverging from its conventional path, and is heavily investing in it.
MasterCard’s Business Strategy
MasterCard, through its history, has been a work in progress. The company has continued to evolve and set the bar higher. It’s essentially a technology company in the global payments industry that interlinks consumers, merchants, financial institutions, government, businesses, among other players, enabling them to use electronic forms of payments seamlessly.
How Does MasterCard Operate?
MasterCard operates a multi-rail network that offers its customers a holistic and effective payment method for their domestic or cross-border needs. The core network links issuers and acquirers worldwide to facilitate the switching of transactions, allowing account holders to use a MasterCard product at millions of locations around the globe.
A typical transaction involves four participants in addition to MasterCard, including:
- Account holder (a person or entity who holds a card or uses another device enabled for payment)
- Merchant (entity from whom the account holders buy goods or services)
- Issuer (the account holder’s financial institution)
- Acquirer (the merchant’s financial institution)
Here’s what an everyday transaction is like: An account holder makes a purchase using one of MasterCard’s payment products. The transaction is first authorized by the issuer, which then pays the acquirer that particular amount and posts the transaction to the account holder’s account, recording it. The acquirer then pays the amount of purchase to the merchant.
MasterCard offers efficient, quick, secure, and seamless means for receiving and making payments to customers and businesses in real-time.
The MasterCard Way Of Doing Business
MasterCard uses a mixture of well-defined organic and inorganic strategies to grow, diversify, and build its business.
Grow
Growth is at the heart of MasterCard’s agenda. It focuses on growing its core business worldwide, including the customer base, products and solutions, and the number of payment transactions. It aims to do this by continuing to evolve to provide its customers with the effective and efficient payment solutions they need to transact securely and conveniently in the world economy. This includes expanding merchant access to electronic payments and providing a delightful customer experience every time.
Diversify
MasterCard continues to diversify its business by onboarding new customers, including merchants, corporate businesses, governments, FinTech’s, mobile and digital players, among others. It also continues to move into different locations worldwide – even in markets where there are limited electronic payments today but with huge upside and potential. Finally, MasterCard remains committed to catering to the needs of the unbanked and underbanked, increasing financial inclusion.
Build
In its quest to scale the business, MasterCard creates and acquires differentiated products and platforms to provide innovative and better solutions that meet the needs and preferences of its growing customer base. The company also provides a host of services, including data analytics, consulting, marketing services, cyber and intelligence, and processing, among others.
Invest In Talent & Culture
MasterCard realizes the immense importance of the skills, talent, experience, integrity, and mindset of the people that make MasterCard what it is. Hence, the company does everything it can to attract, retain, and nurture top talent from diverse backgrounds. The company strives to create a world-class culture based on decency, respect, and inclusion, giving people the opportunities to do meaningful work and create a lasting impact on a global scale.
Key Takeaway 5: Nothing Works Like A Solid Business Strategy
MasterCard is a company that’s always in the works. It continues to find better ways of doing things and makes it a point to remain a step ahead – always. All of this is possible due to its solid strategy that includes growing the core business and delighting customers, diversifying the customer base across industries and geographies, building new, differentiated solutions, and empowering its people.
Rather than be a jack of all trades and master of none, MasterCard has specialized in providing payment solutions and services and focuses on doing that better than anyone else out there. This simple yet effective approach has helped the company become a leader in the global payments industry.
MasterCard Today & Key Strategic Takeaways
If there’s a financial transaction taking place anywhere in the world, anytime, the odds are that MasterCard is at play there. The company is a pioneer in payment innovation and technology, connecting its billions of customers – consumers, merchants, businesses, governments, and financial institutions across the globe. Its journey from a not-for-profit service provider owned by the 25,000 banks and financial institutions to a leader in the financial services industry, is worth celebrating.
Today, more than ever, MasterCard is reshaping the future with its bold bets on new technologies to modernize payments, innovative solutions to create a meaningful impact, and customer-focused, forward-thinking insights that change the way people shop, sell, exchange, and interact.
Growth By Numbers
Key Strategic Takeaways
Invest In Training & Development
MasterCard’s innovation and success are a result of the company’s laser-sharp focus on continuous learning. It understands that it operates in an industry that’s rapidly evolving, and without innovation, the company would not be a force to be reckoned with anymore. Hence, rather than emphasize hiring and acquiring talent, MasterCard prefers to retain its employees by increasing job satisfaction, providing a social purpose, and increasing skill.
The company has created a culture of continuous learning to develop enhanced capabilities. Creating an agile and curious mindset, developing new skills, encouraging collaboration, personalizing and adapting with changing times, and offering diverse content to appeal to different employees around the company are all key components of MasterCard’s continuous and collaborative learning programs that empower employees and prepare them for the future.
Explore Multiple Avenues For Growth
From venturing out in different geographic regions around the globe and launching new products and services to marketing aggressively and expanding its customer base by catering to the needs of different parties, MasterCard has continued to leverage different channels to grow organically and inorganically.
Rather than putting all eggs in one basket and focusing on a specific type of consumer, a particular geographic region, or being comfortable providing its conventional credit and debit card service, MasterCard has, over the years, continued to grow, diversify, and build in its quest to grow. The constant iterative improvements, ability to think big, and continuously setting the bar higher by challenging themselves have made MasterCard a behemoth in the financial services industry.
Adapt & Evolve While Doing What Matters
Change is the only certainty. MasterCard knows this better than everyone else. The company has never shied away from being bold and taking risks. From changing its strategy and leadership in the 2000s to investing in going digital and harnessing the power of emerging technologies, MasterCard made huge bets that paid off remarkably well for the company. While normally, it is extremely difficult for companies as large as MasterCard to change directions and be flexible enough to adapt quickly, MasterCard is an outlier in that regard.
After all, the company foresees the future rather than wait for it and then invents it by putting its money where its mouth is. All along, it remains committed to its agenda of doing right by the people and the planet. Its sustainability campaigns, prioritizing employee wellbeing and helping out the community in every way can have earned the company a glowing reputation.
There’s No Substitute For A Rock Solid Strategy
MasterCard’s success isn’t a result of luck or an array of exogenous factors. It’s a result of a solid strategy that continues to drive the company forward through thick and thin. What has given MasterCard a competitive advantage and fueled its rise to the top is its 3-step simple strategy of growing the core business, diversifying the customer base across industries and geographies, and building new, differentiated solutions that delight its extensive customer base.
All along, MasterCard remains firmly committed to the people and communities that it’s a part of. Believe it or not, it is this simple set of strategies that have helped the company tackle challenges such as the financial crisis and even the Covid-19 pandemic all the while helping it achieve the desired results.
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