Case Study: MasterCard’s Business Model

What is MasterCard?

But what does MasterCard exactly do? It provides credit, debit, and prepaid cards from over 25,000 financial institutions. However, MasterCard is primarily a credit card company and specializes in the innovation of these cards throughout the world. It is a also a payment solutions company and through its three tiered business model as franchisor, processor and advisor, the company has developed a new world for its card holders and merchants. The company provides marketing, approval, and transaction services for a variety of payment products in more than 210 countries and territories.

Regardless of the type of card, all of them act under the “four-party” payment system. Under this system there are obviously four types of people, the card holder, the issuing bank, the merchant, and the acquiring bank. First, the issuing bank provides their customer with a card that they market and issue throughout their locations. Then the now card holder buys a good or service. But before there are even cardholders buying goods or services at this said business, the merchant’s bank (or acquiring bank) must first enroll the merchant in a program that accepts MasterCard (Cirrus or Maestro) cards. The merchant (or the salesperson) then (can and does) accepts the MasterCard payment in exchange for that good or service instead of cash. The transaction is over, the card holder receives the good or service and the merchant receives the cash a few days later. MasterCard manages a number of payment card brands, including MasterCard, Maestro and Cirrus. MasterCard generate revenues from the fees that it charges its customers for providing transaction processing and other payment-related services operations fees, and by assessing its customers based on the dollar volume of activity on the cards that carry its brands.

MasterCard history

MasterCard was established in the late-1940s when several US banks began exploring alternatives to cash transactions. In 1951, the Franklin National Bank in New York created the first formal credit card, and through the 1950s, the system expanded. Later, in 1966, a group of banks under the name „Interbank Card Association‟ entered the business. Instantly this company spread and went global. In the 1970s it changed its name to MasterCard.

MasterCard was the first to introduce a few things. This included a gold bankcard program in 1981, the use of laser holograms to prevent fraud in 1983, and by 1987 was the first credit card company to penetrate the Chinese market. MasterCard took a number of key steps during the 1990s. The company launched Maestro in 1991, a partnership with counterpart Europay International, which was the world‟s first global online debit program. The first coast-to-coast national online debit transaction in the US was completed by Maestro in 1992. In 1996, it introduced the MasterCard Global Service, the first program to offer customers telephone access to core emergency and special services around the world. MasterCard merged with European counterpart Europay in 2002, to facilitate the merger transaction with Europay. Europay was integrated into the global organization as MasterCard‟s Europe region. In 2004, the company announced plans to become a public company in 2005. MasterCard made its initial public offering on the New York Stock Exchange (NYSE) in May 2006. In the same year, MasterCard introduced new corporate name, MasterCard Worldwide, and adopted a new corporate signature and tagline, “The Heart of Commerce.” These two new concepts were established to express the global nature of MasterCard.