MasterCard Incorporated AMA

Morningstar Rating

Stock Research and Analysis

by Michael Kon, CFA

MasterCard operates the second-largest open-loop card network in the world. The firm's clients are financial institutions that issue MasterCard cards to their clients and process card transactions. When a cardholder swipes a MasterCard card, the merchant Read more

Bulls Say

MasterCard is a leading brand in the global payment industry. According to the Nilson Report, about 31% of the world's credit cards have a MasterCard brand, second only to Visa, which has about 63% share.

We think MasterCard's global brand strength is a strong competitive advantage when entering new or developing markets. Consumers and merchants in less-developed markets tend to prefer a well-known global brand such as MasterCard's because of its prestige and reputation.

In our view, the enormous investment required to build and support a consumer payment brand among consumers and merchants acts as a huge barrier to entry to potential rival consumer payment systems.

MasterCard's processing network has plenty of room to grow before additional capacity is needed. Currently, the network runs at only about 70% capacity on a peak day.

The litany of legal and antitrust charges levied against MasterCard--the legal footnote in the firm's annual report filled 12 pages--is evidence of the attractiveness of the firm's business model and its competitive strengths. Read more

Bears Say

MasterCard has been a target of numerous lawsuits alleging anticompetitive behaviors. Resolution of these lawsuits could cost the firm billions of dollars and lead to substantial stock price volatility.

If the interchange fees charged to merchants decrease substantially, banks that issue MasterCard cards will probably put even greater pressure on the firm to reduce the amount of processing fees and assessments that it charges, leading to lower revenue.

In many of its international markets, MasterCard transactions are processed through rival processing networks rather than its own. These types of transactions produce less revenue for MasterCard than those processed on its proprietary network.

American Express has been stealing share from MasterCard in its biggest market, the U.S. We expect this to continue, now that Amex is allowed to issue its cards through banks that were previously exclusive to MasterCard and Visa.

MasterCard is a distant second to Visa in debit cards. Although this market is growing quickly for MasterCard, it will be difficult for the firm to catch up. Read more

Strategy

The company's goal is to flood the globe with MasterCard-branded debit and credit cards that are processed through its proprietary network. The firm aims to accomplish this by fortifying its relationships Read more

Management

CEO Robert Selander has been at the helm of MasterCard since 1997. We think that management will need to prove its mettle during the next few years as it deals with the tricky transition from being a bank-owned association to a publicly held, profit-focused Read more

Profile

MasterCard manages a group of global payment card brands, including MasterCard, Maestro, and Cirrus, which it licenses to financial institutions that issue cards to their Read more

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