MasterCard's focus on data? Priceless
It costs less to increase a customer's loyalty than to get a new one. MasterCard has done this to gain big profits -- and an edge over rival Visa.
That is, Visa stuck to its knitting and dominated the niche, while MasterCard went into a bunch of other businesses and trailed like a puppy after a bigger dog.
Maybe my prejudice came down to regionalism. Coca-Cola is based in Atlanta, where I now live, and MasterCard, like Pepsico, is based in Purchase, N.Y., outside New York City.
It's also possible that in this case I was wrong.
While the two stocks have marked each other closely since Visa did its IPO, in 2008, it was MasterCard that came up with the idea of going public first, in 2006. If you got into that deal at $39/share, the IPO price, you are a very happy camper -- the shares are up over 1,000% and now trade at $523.
Offense vs. defense
I think the difference between MasterCard and Visa these days comes down to offense versus defense. The battlefield on which they play is data. The way they see data makes the difference.
Visa focuses on the business of processing transactions. It defines the industry's security procedures, which management takes very seriously and enforces rigorously.
MasterCard is focused more on what transaction data means, and how it can be used to create more transactions.
It quietly launched an online mall called MasterCard Marketplace in 2010 based on NextJump's reward-program technology. By connecting member banks' reward programs to the marketplace, MasterCard builds shopper dossiers on customers. The more you use it to get free stuff, the more it learns about for what you're willing to pay.
Free stuff is the new way to build profit into credit cards.
With cards taking a discount of between 2% and 5% to process a transaction for merchants, plus interest and fees from the customer, there's plenty of money to create a reward program that makes sure that money keeps flowing in.
Credit cards have replaced the old Green Stamps from when I was a kid, with data making them much more valuable to merchants than before.
Your digital wallet
Rather than just offer "reward points" based on purchase volume, MasterCard lets merchants award "WOWpoints" of anywhere from 1% to 5% of the purchase price, giving them more control over the process. Off this data it also offers "overwhelming offers," a sort of Groupon with national merchants aimed at building store and brand loyalty.
The company's latest move is MasterPass, a digital wallet that can hold rival credit cards, even Visa numbers. It's a shortcut for online payments, and it integrates with Near Field technology so that phones can be pressed against readers to move money around.
This is a simple evolution from PayPass, introduced last year. You may have seen it as an add-on to some merchant terminals, its logo looking like a radio wave.
As with the Marketplace, which went to market with banks, MasterPass also goes to market through third parties, in this case merchants. Lots of different kinds of companies can offer their own digital wallets through the program, and gain some control of the resulting data.
Follow the data
Data is the key point here. Not just payment data but preference data, and data that can increase loyalty to a bank or a merchant. It's a lot cheaper for a store to turn an occasional shopper into a regular with escalating discounts than it is for them to advertise for new customers.
Whatever MasterCard is doing right, it's been discovered by the smart money. The stock sports an earnings multiple near 24 -- Google (GOOG) territory -- drawing one dollar in three to the bottom line. It is, quite literally, a license to make money.
The question occurs, of course, that in this world of ever-changing money, with Google launching a wallet and startups like Square, can MasterCard keep its mojo going? They say follow the money, but here in the 21st century the better idea is to follow the data.
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An excellent point that hadn't occurred to me. I remember my mother pasting stamps in the pages of the green stamps books to get enough to redeem them. Today, I use my cash-back (1% to 5%) credit cards at every opportunity (even sub shops that accept them: where I get 2% cash-back) and redeem them through Amazon.com, where I do a lot of shopping.
I used to prefer to pay cash because seeing my wallet get thinner had a nice braking effect on my spending. But I'm averaging 1.5%-2% cash-back and, instead of looking at my thinning wallet, I check my balance online every few days to make sure I'm not going to get a shock at my next bill. Of course, you have to make sure you pay the statement balance off entirely each month so you don't get charged interest.
Mastercard`s stock is up about 10 fold since it`s IPO.Even the sour puss far right would
be in a better mood if they had bought then.
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