MasterCard: The Cashless Champion in the Global Payments Industry

“A bag of chips: $3. Frozen yogurt: $2. A grilled Salmon sandwich from Spangler for dinner: $8.75.  An HBS section retreat to Vermont: $200. Performing to Beyonce’s “Single Ladies” during your section retreat: Priceless.  There are some things money can’t buy. For everything else, there’s MasterCard”.


MasterCard Commercial

Payments are an integral part of our lives today. With the industry growing at double digits, the players in this ecosystem are finding ways to innovate in order to avoid disintermediation. Today MasterCard is one of the leaders in the payments industry. The company is at the center of the Four Party Payment System– an ecosystem that connects Issuing Banks, merchants, Merchant Acquirers, and the payment processors- to facilitate how we pay for goods and services. Despite growing threats of entrants into the fintech world, MasterCard has found ways to continually grow, innovate, by having an efficient operating model that supports its business model and mission to make payments “safe, simple, and smart”.

Four Party System


Revenue Model

MasterCard’s core competencies lie in processing domestic and cross-border transactions in a safe and fast way. Its core business boasts different revenue streams:

  1. Domestic Assessment fees: MasterCard receives a percentage of the total amount for each domestic transaction on credit. This percentage or fee varies for the Issuers, the merchant category, and other factors and typically can range from 0.10% to 0.125%. With domestic payment transactions volumes surpassing $3 trillion dollars in 2014, this represents a sizeable business for the company
  2. Cross Border volume Fees: Similar to domestic fees, MasterCard gets a percentage of the dollar volume of MasterCard branded cards where the sale occurred outside of the Issuer’s country. These percentages are typically higher than domestic transactions and can reach 1% of transaction volume.
  3. Transaction processing fees: These are fees charged based on the number of transactions
  4. Other sources of revenues: MasterCard’s business also includes different value-added services sold to its Issuers, Acquirers, and merchants. These include Consulting services, fraud services, loyalty and rewards solutions, and other payment-related services

MasterCard Financials

Operating Model

MasterCard’s three-prong strategy of growing the core, diversifying its business while expanding into new geographies and verticals requires an agile and lean operating model. Its core processing business is supported by a team of engineers and technology experts to monitor the payment processing network. Furthermore, MasterCard features a team of Account Managers, expert Marketers, and Advisors to serve its clients. Account Managers are in charge of driving client value (Issuers, Acquirers, merchants) by monitoring and evaluating the portfolio, understand client and customer pain-points, and agilely addressing customer requests.

To further drive client value, MasterCard has the world’s largest payments consulting firm, MasterCard Advisors. This team provides “real-time transaction data, cutting edge proprietary analysis, data-driven consulting, and marketing services solutions to help clients optimize, streamline, and grow their businesses”. It serves clients across three main verticals: Information services (Data intelligence to better understand customer behavior and macro-spending patterns), Consulting services (insights on client portfolios and client operations to provide business and operational solutions), and Managed Services (implementation services to drive additional consumer value). A focus on these services will enable the company to further avoid disintermediation by deeply integrating into its core client business.



There are several reasons why MasterCard’s business model is creative and sustainable

  1. It follows country growth trends and technology. Because MasterCard gets a fixed fee of total cards spend, its revenues are indexed to inflation. Government policies to reduce cash handling costs and move towards a “cashless society” directly benefits MasterCard.
  2. High profit margins: With revenues of $9.4 Billion and net income of $3.6 Billion in 2014, MasterCard’s business model is extremely profitable, allowing the company to invest its excess cash on its technical capabilities and innovation to avoid disintermediation
  3. Global in nature: MasterCard processes payments in more than 150 currencies in more than 210 countries and territories. This is a critical advantage in that the company has data from so many countries to evaluate consumer behavior through spending.
  4. Fast network with on-soil processing: MasterCard boasts both a centralized and sophisticated processing hub that also provides value-added services (such as fraud monitoring) to its Issuers. Because of regulation in certain countries dictating that payment processors must process on-soil, MasterCard has enabled local payment processing. This becomes a key competitive edge, especially against its big competitor Visa
  5. Forward thinking and innovation; With global mobile penetrations above 80%, mobile payments are the future in the industry. MasterCard is already betting in this future trend by partnering with Apple and Samsung in their Apple Pay and Samsung Pay mobile payment gateways.

While the industry shifts greatly and many players continue to enter and play in this ecosystem, MasterCard benefits from 50 years of global operations and strong alliances with the leaders of the future of this ecosystem.


MasterCard Credit Card



  1. MasterCard Website
  2. MasterCard Annual Report 2014
  3. Forbes Profile of MasterCard:
  4. The Tool Booth of Visa and MasterCard:


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Student comments on MasterCard: The Cashless Champion in the Global Payments Industry

  1. Nice one, Sijh!

    Had a question for you about point number 2 in your conclusion. Although MasterCard’s operating margin is great by any measure, it does lag Visa’s considerably. Working at Visa, we always interpreted the cause of this as a combination of:

    1) MasterCard “buying” market share by offering clients more incentive dollars than Visa was willing to offer, and;
    2) MasterCard being a more willing partner to enable projects that cut margins but may help gain share (such as partnerships for localizing domestic processing).

    Gaining share is clearly key for MasterCard, since they are the smaller player in many regions, but do you think that this type of strategy is viable in the long term, or do you think it will poison the pool and lead to reduced margins for both players as Visa is forced to respond?

  2. Marc,

    Thanks for the comment! Two things:
    1. The “buying” market share is not a strategy that is sustainable. This is something we are moving away from as it becomes value destructing for us and for the Banks. It has worked in some parts of the world but it is not working well in the Middle East at least. At MasterCard, we always think that this is the natural thing that Visa would do because you have more money and more overall market share so you can afford it. But as the second player, we can’t play on size so we have to be strategic about the clients we pick and how we design incentives around them. We do that by integrating deeply in their core business by cross-selling other products (loyalty rewards solutions, fraud solutions, Advisors Consulting) so we avoid the price war

    2. We are suffering from governments that are deciding to create their own domestic switches. GCC Connect (the switch for all the GCC countries in the Middle East) is now live and it has eaten significantly our domestic processing dollars in those countries. More countries are threatening to do the same. So our focus will be on cross-border and other services going forward since domestic processing is becoming less and less relevant.

    In the long term, that’s where I see where all of the big technology players will be fighting their battles. We need to invest in Emerging payments (Apple Pay, Samsung Pay), in domestic processing (to comply with regulation), and in other services (to avoid disintermediation). The space is still growing double digits but it will take more work than before to sustain this growth. Let’s fight the battle in Africa 🙂

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