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Investing in Mastercard, Inc (NASDAQ: MA)

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Mastercard, Inc (NASDAQ: MA) is a company that needs no introduction. A household name synonymous with payment processing, the company provides financial services that connect financial institutions, individuals, and merchants through millions of transactions every day. Despite being mainly known for its credit, debit, and prepaid cards, the company has also been investing heavily in other technologies that will help shape the future of the financial sector.

What is Mastercard, Inc (MA)?

The first multi-purpose credit in the United States was offered by Bank of America in the late 1950s. Prior to this, cards were issued by retailers and could only be used at those establishments. Following the success of the Bank of America card, several other banks released their own products. Due to laws in many states at the time, smaller banks were only allowed to offer their cards in a single state. As a result, several smaller regional banks banded together to form Interbank Card Association (ICA), allowing them to offer products to a wider range of customers. The ICA, whose name represented the connectivity across financial institutions, formed the basis for what is now known as Mastercard. After a period of consolidation in the space, it was not until nearly 15 years later that the company changed finally its name from ICA to Mastercard.

Since then, Mastercard, along with Visa, has dominated the payment processing space. Their market share is so large that several antitrust issues have arisen in the United States, as the two companies used their power to force banks not to do business with competitors such as American Express and Discover. Even with their control over the payment processing space, the company has not become complacent. The company empowers their 18,600 employees, encouraging them to innovate by looking locally and working with entrepreneurs and developers to figure out ways of improving their services. With the ability to provide services to 210 countries around the world in 150 different currencies, the company has continued to remain relevant for over half a century by constantly bringing new ideas to the table.

Why does Mastercard, Inc (MA) Matter?

Mastercard’s product offers are broken down into two general categories: credit and prepaid/debit. Both of these categories generate roughly equal amounts of revenue for the company. The company generates revenue through these two product categories in several ways. During each transaction, Mastercard collects a fee known as service revenue or a “swipe fee”. This service revenue applies to every transaction and is the area where Mastercard earns the bulk of its revenue. Another category is their international revenues, which deal with purchases outside of the country that may require currency exchanges that result in foreign exchange fees. Finally, the company also earns revenue under their data processing stream, which involves actions such as settling transactions between the merchant’s bank and the customer’s bank and actually transferring the money into the correct accounts.

While the company does not release specifics on metrics related to transactions, it is safe to say that numbers are only increasing as more of the world gains access to credit and other financial services. According to one estimate, the total number of transactions through all payment options will reach 642.01 billion in 2025. This number represents a growth of 40 percent over 2020 levels. Much of this growth is likely to occur in developing economies where individuals are increasingly needing access to credit. While overseas growth in areas such as China may be dominated by payment solutions such as Alipay and WeChat pay, Mastercard’s market position will undoubtedly still allow them to capture a substantial proportion of future growth in the sector.

Mastercard, Inc (MA) Prospects

While Mastercard and rival Visa have enjoyed a period of dominance, competition from the newer, digital age such as Paypal and Sqaure continue to grow. Mastercard is still a vital part of the financial transaction network worldwide.In addition to traditional transactions, Mastercard is also venturing into the cryptocurrency world. In February 2021, the company announced that they will start supporting cryptocurrencies directly on their network. Initially, the company is planning on offering support for stablecoins, and have stated that strict compliance measures will need to be in place for any digital assets before they are brought into the Mastercard network.

This follows actions taken in 2020, when the company partnered with Wirex to offer the first multicurrency Mastercard card. The new card will allow customers to pay using a variety of fiat and cryptocurrencies without the need to first exchange currencies. The Wirex card has the ability to hold 10 digital currencies along with 9 traditional currencies. In addition, Mastercard also developed a partnership with BitPay, and together they introduced the first prepaid card that can be loaded with crypto and converted to traditional currencies. Much of the crypto adoption has been made possible by the company’s Accelerate program, which works with crypto partners and fintech companies to help them grow and eventually enter into the Mastercard ecosystem.  The emphasis the company has placed on this is a clear signal of a continued emphasis on keeping up with changes to technology and to consumer behaviour.

Where to Buy Mastercard, Inc (MA)?

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Summary

While traditionally known for their credit card, debit card, and prepaid credit card offerings, Mastercard has continually pushed the boundaries in order to meet the ever-changing needs of their client base. Even with an increasing number of new entrants into the payment processing space, the company’s innovation has allowed it to maintain its spot at the top of the sector. With its brand recognition and continual pipeline of new services and product offerings, the company’s future remains extremely promising.

Baggio has been an investor in the technology space for over half a decade. He uses the perspectives gained from his work experience in the private, public, and non-profit sectors to guide his investment strategy, with a specific interest in the potential of emerging disruptive technologies.

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