MARKETING STRATEGY OF MASTER CARD

8/3/2019 MARKETING STRATEGY OF MASTER CARD

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REPORT ON

MARKETING STRATEGY OF MASTER CARD

Submitted By:

NAME: - Amar S. Kalekar

Class: - S.Y.B.M.S.

Roll No: - 06.

College:- Sant Gadge Maharaj College of Commerce and Economics,

Khetwadi, 12th Lane, Mumbai-400 004.


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DECLARATION

I declare that the project entitled MARKETING STRATEGY OF MASTER

CARD is a record of independent work carried out by me under the

supervision and guidance of Prof. Mrs. C. Rodrigues. This has not been

previously submitted to the University of Mumbai, for the award of any

diploma, degree or any other similar title.

Place:

Date: (AMAR S. KALEKAR)


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CERTIFICATE

I certify that the project entitled MARKETING STRATEGY OF MASTER

CARD submitted to Sant Gadge Maharaj College of Commerce and

Economics for award of Bachelor of Management Studies Degree, is a record

of independent work carried out by Mr. Amar S. Kalekar student in this

college, under my supervision and guidance. This has not been previously

submitted to the University of Mumbai for the award of any diploma, degree or

any other similar title.

Place:

Date: (Prof. Mrs. C. Rodrigues)


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ACKNOWLEGEMENT

It gives me pleasure to submit this project to the University of Mumbai as

a part of curriculum of my BMS course.

I take this opportunity to express my sincere gratitude to respected Prof.

C. Rodrigues ofSant Gadge Maharaj College of Economics & Commerce,

who is my project guide, without whose guidance, inspiration and motivation; I

could not have completed this project successfully. I take immense pleasure in

thanking her for her valuable assistance in completion of this project.

(AMAR S. KALEKAR)


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TABLE OF CONTENTS

Sr. No. Topics Page No.


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LIST OS TABLES


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LIST OF GRAPHS AND CHART


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SYNOPSIS

Marketing Strategy of Master Card:

MasterCard Incorporated or MasterCard Worldwide is an American multinational financial

services corporation with its headquarters in the MasterCard International Global

Headquarters, Purchase, Harrison, New York, United States. Throughout the world, its

principal business is to process payments between the banks of merchants and the card

issuing banks or credit unions of the purchasers who use the "MasterCard" brand debit and

credit cards to make purchases. MasterCard, originally known as Master Charge, was created

by several California banks as a competitor to the Bank America card issued by Bank of

America, which later became the Visa credit card issued by Visa Inc.

Purpose of the study:

The main reason to select Marketing Strategy of Master Card as a topic is to understand the

importance of the role played by master card.

In this project, I am trying to explain the marketing strategy of master card. Like many

debit cards, the brand has capabilities of being used as an ATM card as well as a credit card,

providing sufficient funds are in one's bank account in order to complete a transaction. The

analysis and interviews with banks personnel has given me a practical and real life exposure

to the banking scenario as far as the master card goes, I could correlate between the theory

and their practical application.


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INTRODUCTION

MasterCard Worldwide is an American multinational financial services corporation with its

headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New

York, United States. Throughout the world, its principal business is to process payments

between the banks of merchants and the card issuing banks or credit unions of the purchasers

who use the "MasterCard" brand debit and credit cards to make purchases. MasterCard

Worldwide has been a publicly traded company since 2006. The company was created by two

entrepreneurs in Louisville, Ky. named Raymond Tanenhaus and Stanley Benovitz. It was

absorbed by the United California Bank in year 1966. Prior to its initial public offering,

MasterCard Worldwide was a cooperative owned by the 25,000+ financial institutions that

issue its card.

MasterCard, originally known as Master Charge, was created by several California banks as a

competitor to the Bank Americard issued by Bank of America, which later became the Visa

credit card issued by Visa Inc. The original banks behind Master Charge were United

California Bank (later First Interstate Bank and subsequently merged into Wells Fargo Bank),

Wells Fargo, Crocker National Bank (also subsequently merged into Wells Fargo), and the

Bank of California (subsequently merged into the Union Bank of California).


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HISTORY

MasterCard logo used on cards since the year 1997

In 1966 the aforementioned group of California banks formed the Interbank Card Association

(ICA). With the help of New York's Marine Midland Bank, now HSBC Bank USA, these

banks joined with the ICA to create "Master Charge: The Interbank Card". The card was

given a significant boost in 1969, when First National City Bank joined, merging its

proprietary Everything Card with Master Charge.

In 1979, "Master Charge: The Interbank Card" was renamed simply "MasterCard". In the

early 1990s MasterCard bought the British Access card and the Access name was dropped. In

2002, MasterCard International merged with Europay International SA, another large credit-

card issuer association, which for many years issued cards under the name Eurocard.

In 2006, MasterCard International underwent another name change to MasterCard

Worldwide. This was done in order to suggest a more global scale of operations. In addition,

the company introduced a new corporate logo adding a third circle to the two that had been

used in the past (the familiar card logo, resembling a Venn diagram, remains unchanged). A

new corporate tagline was introduced at the same time: "The Heart of Commerce".


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RESEARCH PROBLEM

Most business owners are so busy achieving their business dreams that the minutia of

monetary issues is an afterthought. But solve money issues on the fly and you may actually

hurt your long-term financial goals, say experienced business owners.

Many of us just shoot from the hip and hope for the best, says Suzi Berman, owner of D

Media Graphic Design in Dallas. I have seen other business owners get in over their heads,

and its scary. I grew my business on a slow and steady pace. I was able to pinpoint when it

became too fast, too quick, and I pulled back before I suffered any financial damage. If you

have to take risks to grow, then go ahead and jump. But carefully evaluate where you land

before jumping again.

Consider these solutions to four common money problems that might help to overcome latest

cash dilemma:

Problem 1: Clients dont pay you in time to meet your vendors bills.

Cash flow is one of the biggest issues for small businesses, according to Linda Forman, a

certified public accountant in Evanston, Ill., who specializes in advising entrepreneurs.

People who lack adequate capital easily get into trouble, she says.

They never think of the emergency money theyll need, Forman says. They think that the

minute they send out a bill, people will pay, but they dont consider the time lag and dont put

a cushion in.

Problem 2: You cant decide between cash basis or accrual accounting methods.

Peter Georgatsos, president and co-owner of Fotis and Son Imports Inc., a Greek food and

wine importing company in Huntington Beach, Calif. When he took over the business from

his father, the business was using a cash-basis accounting method. This approach required

him to record revenues when he actually received cash and the expenses when he actually


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paid them, regardless of when he billed. To keep inventory up, they had to rely on a line of

credit from the bank.

Problem 3: You cant decide whether to hire more staff.

Georgatsos remembers when he hired a delivery driver. Until then, he and his father and

sister were making deliveries. The hire seemed painful at the time. The driver wanted X

amount of dollars, and I wondered if it would cut into my income, he recalls.

Problem 4: You need a big-ticket item.

As Georgatsos business has grown, so has his overhead. Hes had to get trucks, property,

even a new phone system.


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OBJECTIVES OF THE STUDY

The main purpose of this study is to research and analyze the marketing strategy of Master

Card. The following things are to be studied in this project:

y To find the problems of money that might help to overcome cash dilemma;

y Why banks boost for credit cards;

y To find out the working of master card.


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METHODOLOGY

The information provided in this project has been collected from various articles through the

Internet.

The information collected has been diluted and presented in a very simple way.

SCOPE OF STUDY

This project has been prepared with an intention to understand the marketing strategies used

by MasterCard. Usage of MasterCard is increased by the banks.

LIMITATIONS

As such, there were no problems faced while carrying out the project study. The only

problems faced were when there was limited data available.


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Why banks are boosting credit card interest rates and fees?

A key driver behind this trend: securitization. From 2003 to 2007, seven of the largest issuers

of credit cards packaged an increasing amount of card debt into securities and sold them to

investors, just as banks did with mortgages, a USA TODAY review of banking records

found.

Selling off credit card debt has given banks a powerful incentive to raise card fees and

penalties, according to interviews with dozens of industry analysts, academics and investment

specialists.

Here's why: When banks package and sell card debt, they pass along to investors some of the

risk the debt will go bad. Yet, banks often get to pocket much of the profit from rate and fee

increases on those accounts. Imposing higher fees on more accounts without a comparable

rise in risk lets banks raise revenue and keep profits up, at customers' expense.

Securitization has been a "major impetus" for banks to expand penalty fees and rates in recent

years, says Adam Levitin, a Georgetown University law professor and card expert. Banks

"have little to lose if they squeeze too hard (if consumers default), but a lot to gain if they can

extract additional payments" from card users, he says.

Banks deny any link between securitization and rising penalties. They say fees are rising

because of superior data-tracking tools that allow banks to draw precise profiles of card users.

Banks can price debt fairly, officials argue, with riskier borrowers paying more, as they

should.

"Securitization is a method of funding credit card loans," says James Chessen, chief

economist at the American Bankers Association. "Penalty fees and rates are entirely separateand completely avoidable."

As the debate unfolds about whether and how much securitization drove up penalties,

analysts are bracing for an acceleration in credit card losses. Already, delinquencies are at


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their highest point in six years. Defaults, triggered when banks give up on collecting bad

loans, are rising rapidly, too.

By the end of 2009, banks are likely to write off a record amount up to $96 billion, or

about 10% of all credit card debt, says Innovest Strategic Value Advisors, a research firm

that was among the first to predict the mortgage meltdown. The credit card market is a

fraction of the size of the mortgage world, but its collapse could threaten some issuers'

solvency and make it harder for others to absorb financial shocks, says Gregory Larkin, a

senior analyst at Innovest.

"Mortgages were simply the first storm to make landfall," Larkin says. "Credit cards are

next."

Experts worry that the $700 billion authorized by Congress to help stabilize financial markets

will do little to solve the underlying problems.

"Securitization is an important economic tool," says Rep. Carolyn Maloney, D-N.Y. "But

when we saw the subprime (mortgage) meltdown occur, we started really looking at credit

cards as the next crisis. We have to crack down on the abuses."

Several bills in Congress, including Maloney's Credit Cardholders' Bill of Rights, seek to

clamp down on hair-trigger fee and rate increases. The Federal Reserve has proposed limiting

rate increases on existing debt and curtailing excessive fees for borrowers with marred credit.

Meanwhile, amid the slowdown of the securitization markets, Sheila Bair, chairman of the

Federal Deposit Insurance Corp., wants more restrictions on mortgage- and credit-card-

backed securities. "We're finding in retrospect that being able to securitize debt weakens

underwriting discipline," Bair says. "Whether it's credit cards or mortgages, this dynamic

needs to be dealt with."

A proposal by the Financial Accounting Standards Board could lead banks to keep more card

debt on their balance sheets, and hold more capital in case those loans sour. Banks'

inadequate capital levels have prolonged the economic crisis, analysts say.


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Reform is needed, says Travis Plunkett, legislative director for the Consumer Federation of

America, because many of the credit card practices under fire "have been fueled at least in

part by securitization."

A downward spiral

"Securitization," he says, "has increased the willingness of credit card companies to offer

riskier loans. And to compensate, they have moved to a business model that involves hitting

consumers with very high often unjustifiably high rates and fees."

Banks cite the destabilization of their industry as a reason regulators should refrain from

cracking down on their ability to raise fees and interest rates as they wish.

Reforms would "clearly affect issuers' profitability" at a time when they're already struggling,

says Mark Furletti, a lawyer at Ballard Spahr Andrews & Ingersoll, which represents banks.

Banks also warn that restrictions would reduce investors' appetite for card-backed securities.

That, in turn, would force banks to cut back on card loans and raise credit costs, says the

American Securitization Forum, which represents banks and investors.

Consumer advocates fear these arguments could sway regulators away from enacting strong

measures to protect consumers from hair-trigger pricing. Proposed card reforms, while a good

first step, won't dismantle a system that is increasingly relying on punishing fee practices to

boost profitability, advocates say.

"In a bad economy, consumers need more protection from unfair practices, not less," says Ed

Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Already, a downward spiral is unfolding, banking analysts say, as more consumers, pushed

over the edge by penalties, default on their credit card bills. Banks are pulling back on credit

to risky card borrowers even as consumers' access to other loans, including home equity, has

dried up.

Revolving debt most of it on credit cards is soaring, topping $970 billion in September.

The average household now owes $10,678 in credit card debt, up 29% from 2000, according


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to CardWeb.com, a research firm. And more borrowers are paying their credit card bills

before their mortgage bills, credit bureau data reveal, an alarming shift that suggests people

are walking away from mortgages and using credit cards to get by.

Borrowers are also piling up card debt for other necessities.

Newsom, for example, began relying heavily on his Bank of America credit card after

$25,000 in health costs depleted his savings. As his card balance climbed, Bank of America

almost doubled his rate even though he regularly paid above the minimum and did so on

time.

"I'm still managing," says Newsom, an energy company manager. "But it's tough."

Bank of America declined to comment on Newsom's case but says it "regularly assesses the

risk profile of accounts." If the bank decides to raise a customer's rate, it will notify the

customer first and give him or her the chance to "opt out" and pay off the card balance at the

existing rate, bank spokeswoman Betty Riess says.

Banking specialist Levitin says credit cards have become "the drip pan of the economy," a

short-term fix that merely delays a day of reckoning for many people and makes their crisis

all the more ruinous once it arrives.

Rising rates and fees

Bank One helped pioneer credit card securitization in 1986, when it packaged $50 million in

debt and issued securities linked to them. In doing so, it tapped a funding source that financial

institutions had previously used mainly for home and car loans.

Other banks followed. They sold card-backed securities to pension funds, hedge funds and

other investors. Today, nearly half the nation's household revolving debt is securitized via

major banks.


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Among large card issuers, Bank of America, Citigroup, Discover and Washington Mutual

securitized more than half their outstanding credit card debt last year. JPMorgan Chase

which acquired Washington Mutual in September securitized nearly half its card debt and

American Express close to a third. Capital One sold off almost three quarters of its portfolio.

Outstanding card debt securitized by Capital One, Washington Mutual, Bank of America,

Citigroup, Discover, JPMorgan Chase and American Express has doubled since 2003, hitting

nearly $400 billion in 2007. Investor demand for securitized card debt has slowed with the

economy, but not disappeared.

Securitization has helped large banks expand their dominance of the card market, says Arthur

Wilmarth, a law professor at George Washington University. That, in turn, has given banks

the "market power to charge such high fees to consumers."

As securitization ballooned, banks also won legal battles that gave them greater leeway to set

credit card rates and fees. They've replaced cards with fixed rates and few fees with those

carrying multiple rates and a variety of charges, such as phone-payment fees, balance-transfer

fees and late and over-the-limit fees.

From January 2003 to December 2007, the average late fee charged by large card issuers rose

17%, to $35.24, and the average fee charged to those who spend beyond their credit limits

surged 23%, to $26.88, according to CardWeb.com.

Late and over-the-limit fees have grown at a "remarkably similar" pace to the growth of

securitized credit card balances, Levitin says. Such fees have boosted banks' profits. In 2007,

lenders collected a record $18.1 billion in credit card penalty fees, up 69% from 2003,

according to R.K. Hammer, a consulting firm. Fee income is likely to rise another 5.5% this

year as people struggle to pay bills and get hit with more late fees, Hammer says.

Ken Clayton of the American Bankers Association notes that users who abide by terms of

their loans pay no penalties. He contends that securitization has allowed banks to meet

growing demand for cards, resulting in a "lower cost for consumers and more access to credit

for everyday Americans."


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Yet, while the average interest rate has fallen from 18.2% in 1990 to 14.7% in 2007, those

who pay late or exceed the credit limit even once can be hit with far higher rates, up to

32%.

The average card rate has declined only "because banks have figured out (other ways) to get

their revenues," says Duncan MacDonald, a former group counsel at Citigroup. "These guys

have figured out how to deconstruct pricing."

Rising demand for credit card securities enabled banks to become more innovative in raising

rates and fees, says Nomi Prins, who formerly ran a Bear Stearns group that analyzed

securitized consumer debt.

"As long as investor demand grew for credit card collateral embedded with these fees and

higher rates, issuers knew they had a place" to offset their risk and boost their profits, says

Prins, now a senior fellow at Demos.

Securitization gives banks "more of the upside with less of the downside," agrees Elizabeth

Warren, a Harvard law professor. If a bank that sells off card debt doubles a borrower's

interest rate, it will typically keep most of the profits from this increase yet, may not bear

all the exposure if the account later defaults.

Vernon Wright, former chief financial officer at MBNA, now part of Bank of America, says

that selling off credit card debt doesn't give an issuer more incentive to raise card fees than if

it held the loans on its books.

Banks may raise rates and fees if card defaults rise because these profits will be "part of the

cash flow that's going to make up for the losses," says Wright, regarded as the "grandfather"

of credit card securitization. But the banks would do so, he adds, whether or not they sell off

debt.


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Indiscriminate lending

Tom Deutsch of the American Securitization Forum, a trade group for banks and investors,

argues that by spreading the risk to investors, securitization has become "one of the largest

reasons why credit is available to borrowers in low-income, minority neighborhoods."

But experts say card securitization led banks to offer too much credit, too fast, to too many,

similar to what happened in the mortgage world.

Patrick Sargent, a partner at Andrews Kurth law firm, says that banks wanted to get as many

cards securitized as possible. To do so, he says, they expanded lending indiscriminately.

"They were being too flip with underwriting," says Sargent, whose firm worked on some of

the first card-securitization deals.

As securitization took off in the 1990s and boomed in the 2000s, banks' card mailings to

households with less than $50,000 in income also surged, peaking in 2001 at a record 2.1

billion offers, compared with 1.2 billion offers five years before, according to Synovate Mail

Monitor.

Lower-income consumers who carry a balance can be more profitable for banks than other

borrowers.

A 2006 Demos study reveals that households with incomes below $25,000 are twice as likely

to pay credit card rates of more than 20% than those earning $50,000 and five times more

likely to pay such rates than those earning $100,000. Lower-income, single and minority

borrowers were also more likely to pay late fees than others were.

"When you have higher risk, you have to charge more, which is what investors (in credit card

securities) demand," says Michael Brosnan, a deputy comptroller at the Office of theComptroller of the Currency, which regulates national banks.

Yet, in a society where credit has become a necessity rather than a luxury, many people who

can ill afford it are now paying high rates on debt swollen with penalty fees.


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Tim Bellamy, 35, of Grove City, Ohio, says he opened a card account in 2005 with the best

of intentions: to fix a credit record marred by a bankruptcy filing.

Card offers poured in. He racked up $5,000 in card debt after his girlfriend lost her job and he

had to pay the couple's bills. Eventually, he fell behind on card payments. The banks

increased his rates and tacked on hundreds of dollars in fees.

"It's my fault I got in this problem, and I understand that banks need to make money,"

Bellamy says. "But they are ruthless."


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To execute its strategy of grow, diversify and build MasterCard will:

1. Convert cash and check transactions to electronic payments:

About 85% of the worlds retail transactions are currently made with cash or check, which

MasterCard is looking to convert to electronic payments thereby increasing the volume of

processed transactions. MasterCard is also looking to increase its share of electronic

payments by issuing more MasterCard-branded cards. Currently, MasterCards transaction

volume is nearly half that of Visa.

2. Tap affluent customers:

MasterCard is planning to step up its marketing efforts towards its World Elite program

which offers rewards to affluent customers. MasterCard has also launched a Priceless Cities

program which allows MasterCard customers to gain access to special events. MasterCard

spends nearly 10% of its annual revenues in sales and marketing because such programs

contribute to greater volume for the company.

3. Push Prepaid Cards:

MasterCard has partnered with Wal-Mart stores to sell different versions of prepaid cards

carrying MasterCard brand to customers of Wal-Mart. Additionally, MasterCard has recently

acquired prepaid program management operations of Travelex Holdings Ltd. for $481 million

and is looking to grow its prepaid product offerings to international travelers. A large number

of people are becoming budget conscious which is fueling the growth of Prepaid cards as

Prepaid cards are generally offered to low-income or under-banked consumers.


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MasterCard is a leading global payments company that provides a critical economic link

among financial institutions, businesses, merchants, cardholders and governments worldwide,

enabling them to use electronic forms of payment instead of cash and checks. The company

provides a variety of services in support of the credit, debit, prepaid and related payment

programs of approximately 22,000 financial institutions and other entities. The company

offers, manages and processes:

y A wide range of payment solutions, which enable customers to develop andimplement credit, debit, prepaid and related payment programs for their customers

(which include cardholders, businesses and government entities)

y A family of well-known widely accepted payment card brands, includingMasterCard, Maestro and Cirrus, which are licensed to customers for use in their

payment programs.

y Payment transactions over the MasterCard Worldwide Network.

y Support services to customers and, depending upon the service, merchants and otherclients.

y Establishes and enforces a common set of standards for adherence by customers forthe efficient and secure use of our payment card network.

MasterCard generates revenue by charging fees to customers for providing transaction

processing and other payment-related services and by assessing customers based primarily on

the dollar volume of activity on the cards. In 2010 more than 23 billion transactions with

gross dollar volume of $2.7 trillion were processed. There are currently more than 975

million MasterCard branded credit and debit cards. Graph 1 gives an overview of the increase

in transactions in the last 5 years.


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Graph 1: Transaction Overview (Million Transactions)

MasterCard has grown significantly in the last 5 years. The stock price increased from less

than $50 in 2006 to around $370 today. In comparison, the S&P500 hasnt moved at all in the

same period. Graph 2 gives a good indication of how extraordinary the stock has performed.

Graph 2: MasterCard Stock Price Vs. S&P500

The opportunity for future growth remains enormous. Cash and checks account for around

85% of the world's $15.7 trillion of total global payment transactions. This is a huge number


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of payment transactions that can still be converted into electronic payments. Secondly, the

company is aggressively moving into e-Commerce and mobile payment solutions. Cash is

useless when buying online This is a huge opportunity to take advantage of the e-

Commerce trend.

MasterCards margins and return on equity are impressive. EBIT margins are around 50%

and ROE is more than 40%. Stockholder equity has doubled over the last 5 years and free

cash flow has more than tripled (graph 3). The dip in 2008 is the settlement of litigation

charges for $2.5 billion, impacting performance for that year. When a company can grow

equity with more than 20% a year and get a return on that of more than 40%, then youre

looking at real growth potential.

Graph 3: Equity And Free Cash Flow Trend

The company requires very little capital to grow. Free cash flow is almost equal to operating

cash flow. In 2010 the operating cash flow was $1.697 billion, while free cash flow was

$1.636 billion. A lot of cash is available to return to shareholders or can be used for growth

opportunities. The company has a return on tangible capital of more than 50%. The balance

sheet is strong with zero debt and $3.6 billion in cash. On top of that there is $1 billion

approved by the board for stock repurchases.

MasterCard is not cheap. The current stock price is around $380 and has a forward P/E of

around 17. Using the discounted cash flow method with a 10 year growth rate of 9%, terminal


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growth rate of 0% and a discount rate of 10% gives us an intrinsic value of around $328.

MasterCard is a great holding to have in your portfolio. I expect the stock market to remain

volatile in the coming months. Wait for the dips to buy into it.


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Behind a MasterCard Transaction How it Works

Using a MasterCard payment card has become as easy and routine as switching on a light.

However, behind this simple task lies a series of complex and intricate payment processes

designed to keep commerce moving in the blink of an eye, around the clock and around the

world. At the center of it all is the MasterCard Worldwide Networkseamlessly processing

billions of transactions a year so that consumers, businesses and governments can purchase

the things that matter most to them, whenever and wherever they want.

Through its network, MasterCard plays a critical role in processing, or switching,

transactionsconnecting merchants, financial institutions and cardholders together to

facilitate fast, reliable and secure payments. Switching a transaction whether at a store, by

phone or online involves three functions authorization,clearing,

and

settlementin which

merchants, financial institutions and cardholders each play a part.

Authorization

The first step in transaction switching is authorization. When you present your card or device

for payment, the merchant sends your payment information to its financial institution, the

acquirer, forauthentication. The merchant acquirer authenticates, or establishes your identity,

and sends your payment information to MasterCard for account validation and routing.

Despite all of these steps, MasterCard authorizes your purchase quickly and reliably. At this

point, MasterCard may also perform additional security checks such as scoring the

probability of fraud in your transaction or determining whether your card has been stolen.

From there, MasterCard routes your payment information to the financial institution, or issuer

of your card, for verification. Once your issuer verifies the availability of funds in your

account and places a hold on them for the amount of the purchase, it sends the verification to

MasterCard. MasterCard routes the verification to the merchant acquirer, who in turn notifies

the merchant that your purchase has been approved. Despite all of these steps, MasterCard

authorizes your purchase quickly and reliably.


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Clearing

The second step in transaction switching a transaction is clearing. Typically within a day of

authorization, the merchant sends all of their MasterCard-based sales transactions to its

acquirer. The merchant acquirer batches and sends the payment information to MasterCard.

At this point, MasterCard validates the accuracy of the transaction information submitted by

the merchant acquirer and may optionally determine the necessary fees and currency

conversion (if you make a purchase outside of your home country) in order to reconcile funds

between issuers and acquirers. This reconciliation process balances funds between payment

parties on a regular basis.

Settlement

The third and final step in transaction switching is settlement. Usually within two days of

authorization after transactions have been cleared, MasterCard calculates the net settlement

position, or debited and credited amounts, for issuers and acquirersadvising your issuer of

the funds to be debited from your account, while notifying the merchant acquirer of the funds

to be credited to the merchants account. To facilitate the exchange of funds between issuers

and acquirers, MasterCard typically designates a third-party settlement bank. Your issuer will

debit your account and send a payment in the amount of your purchase to the settlement

bank. In turn, the settlement bank will send the payment to the merchant acquirer who

ensures the merchant is paid for your purchase.

As consumers and businesses seek ever more sophisticated and convenient methods of

payment, MasterCard is there, advancing commerce for merchants, financial institutions and

cardholders all over the world with fast, reliable and secure transaction processing.


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SWOT ANALYSIS

MasterCard Worldwide is an American multinational corporation with its headquarters in the

MasterCard International Global Headquarters in Harrison, New York, United States.

Throughout the world, its principal business is to process payments between the banks of

merchants and the card issuing banks or credit unions of the purchasers who use the

"MasterCard" brand debit and credit cards to make purchases. MasterCard Worldwide has

been a publicly traded company since 2006. Prior to its initial public offering, MasterCard

Worldwide was a membership organization owned by the 25,000+ financial institutions that

issue its card.

MasterCard, originally known as Master Charge, was created by several California banks as a

competitor to the Bank Americard issued by Bank of America, which later became the Visa

credit card issued by Visa Inc. The original banks behind Master Charge were United

California Bank (later First Interstate Bank and subsequently merged into Wells Fargo Bank),

Wells Fargo, Crocker National Bank (also subsequently merged into Wells Fargo), and the

Bank of California (subsequently merged into the Union Bank of California).

Strengths:

Film production Cost advantage Asset leverage Strong brand equity Strong financial position Pricing

Weaknesses:

Low market share Poor supply chain


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Weak management team Weak, damaged brand

Opportunities: Financial markets (raise money through debt, etc) Innovation Online Product and services expansion Takeovers

Threats:

Competition Economic slowdown Lower cost competitors or imports Maturing categories, products, or services

Price wars


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Advertising

MasterCard's current advertising campaign tagline is "Priceless". The slogan associated with

the campaign is "There are some things money can't buy. For everything else, there's

MasterCard." The Priceless campaign in more recent iterations has been applicable to both

MasterCard's credit card and debit card products. They also use the 'Priceless' description to

promote products such as their "priceless travel" site which features deals and offers for

MasterCard holders, and "priceless cities", offers for people in specified locations.

The first of these Priceless ads was run during the World Series in 1997 and there are

numerous different TV, radio and print ads. It was idealized by Stewart Emery. MasterCard

registered Priceless as a trademark. Actor Billy Crudup has been the voice in the US market;

in the UK, actor Jack Davenport is the voice. The original idea and concept of the campaign

stems from copywriter Joyce King Thomas and art director Jeroen Bours from the

Advertising Agency of McCann Erickson (so called in 1997, today named: McCann

Worldwide).

The purpose of the campaign is to position MasterCard as a friendly credit card company

with a sense of humor, as well as respond to the public's worry that everything is being

commoditized and that people are becoming too materialistic.

Many parodies have been made using this same pattern, especially on Comedy Central,

though MasterCard has threatened legal action, contending that MasterCard views such

parodies as a violation of its rights under the federal and state trademark and unfair

competition laws, under the federal and state anti-dilution laws, and under the Copyright Act.

Despite these claims, however, noted US consumer advocate and presidential candidate

Ralph Nader emerged victorious (after a four-year battle) in the suit MasterCard brought

against him after he produced his own "Priceless" political commercials. In the election ads

Nader had criticized the corporate financing of both the Bush and Gore campaigns. Using the

theme and some of the language behind the MasterCard "Priceless" campaign the election

specified the dollar amounts contributed by corporate interests to both candidates and then

summed it up with "finding out the truth ... priceless." Mastercard sued Nader's campaign

committee and filed a temporary restraining order to stop the ads. The TRO was not granted


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and Nader defended the ads by claiming they were protected under the fair use doctrine.

Mastercard ultimately lost to Nader making "Priceless" very expensive indeed.

MasterCard MarketPlace

Through a new partnership with an Internet company that specializes in personalized

shopping, MasterCard introduced a Web shopping mall on April 16, 2010 that it says can

pinpoint with considerable accuracy what its cardholders are likely to purchase.

The MasterCard MarketPlace site relies on technology developed by Next Jump, a company

that monitors customer behavior from thousands of retailers and uses the data it gathers to

help merchants tailor their product offerings.

Sports sponsorships

Mastercard engages in the sponorship of major sporting events throughout the world. These

include the New Zealand All Blacks the country's rugby team, the UEFA Champions League,

the PGA Tour's Arnold Palmer Invitational Presented by Mastercard, the Canadian Hockey

League's Memorial Cup and recently announced a new sponsorship deal with Australian

Cricket team and is also the founding sponsor of IPL cricket team Mumbai Indians.

Previously it also sponsored FIFA World Cup but withdrew its contract after a court

settlement and its rival Visa took up the contract in 2007 and in 1997, MasterCard was the

main sponsor of the aborted MasterCard Lola Formula One team.

On October 12, 2007 MasterCard offered $160,000 to the municipal government of Torontoso that the city could keep its ice rinks open, as the city was facing a budget shortfall.


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RECOMMENDATIONS

The following are the solutions recommended for the problems:

Problem 1: Clients dont pay you in time to meet your vendors bills.

Solution: Ask for a line of credit for more money than you think youll need. Then offer

discount incentives to encourage clients to pay on time.

Christine Nelson, owner of Foam Industries Inc. in Champlin, Minn., suggests doubling your

loan requests from what you think youll need. Its hard to get more money later. If you get

approved for $100,000 and then find you need another $50,000, they wont give you more

until you pay back the $100,000. Plan on having it cost more than you think, she says.

Check out information on SBA loans.

Nelson also offers a discount to clients who pay her within 10 days. Because a 1 percent

discount is standard within her industry, she upped hers to 2 percent. It really helped us to

keep our cash flow going, she says. Nelson also factors in the discount when she establishes

her original price. This offsets any potential losses.

Problem 2: You cant decide between cash basis or accrual accounting methods.

Solution: Choose the method that best suits your business operation and use good accounting

software, along with the counsel of a knowledgeable accountant.

Georgatsos recently switched to an accrual system. This requires him to report income in the

fiscal period when he earns it and deduct expenses in the year he incurs them rather than the

year he pays them.

He also set up his books with MAS90 accounting software. He inputs information into the

system, and his CPA logs in remotely to make sure entries are booked into the right accounts.

With the old way, we took all the stubs to them and had to wait while they inputted them,


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he says. There was a lot of room for error. Now we have all the information at our fingertips

and can see month-to-month and yearly trends.

Good software for small business owners is QuickBooks, Forman says. Its easy to figure

out and fairly universal, she says, adding that you can pay a lower rate for a CPAs assistant

to periodically check your work for errors.

Youll still need full-time CPA help, however, says Julie Gnerre-Bourgeois, who owns

Giuseppes Pizzeria & Ristorante in Meredith, N.H., and relies on her accountant to do the

clerical work shes too busy to tackle.

You could spend hours and hours doing [paperwork], and it takes away from whats most

important, she says.

Unlike Georgatsos, she relies on cash-basis accounting because it best suits her business. A

restaurant is not the kind of business where you wait to get paid, she says. Your income is

on-demand. What comes in, comes in, and what goes out, goes out. I like to know what Ive

got.

Problem 3: You cant decide whether to hire more staff.

Solution: If youre wasting time on tasks unrelated to your strengths, you can afford it.

Now I can see that its better to hire someone to do something that was occupying my time,

Georgatsos says. Now, I have more than 35 employees. He notes that when hiring, do so

gradually. Get to a point where you need the person to justify it, and then bring them on.

Payroll is something you owe right away, so it could affect cash flow.

You can cut costs by hiring help on an as-needed basis. Berman, the graphic designer, had a

full-time staff of seven. Two years ago, she changed her agency into a virtual operation, got

rid of office space and convinced her staff to work from home. I still have seven employees,

but theyre freelancing and paid per project, she says.


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When in doubt, use customer happiness as a barometer, Gnerre-Bourgeois says. If the phone

is ringing and no one picks it up, youve potentially lost business. It takes money to make

money. Sometimes I overstaff a little bit to accommodate great customer service, she adds.

Problem 4: You need a big-ticket item.

Solution: Invest in your business by buying, not leasing.

Georgatsos is a proponent of buying good equipment, taking care of it and selling it when the

time is right. We own our own building and equipment. We control our destiny, he says.

Forman says a lot of people make the leasing mistake. Someone is making money on a lease

deal, and it may not be you. Certain things make sense to lease because of maintenance or the

fact that you can upgrade, like an expensive photocopy machine. But you wouldnt want to

lease a computer, and youd be surprised at how many people do it, she says.

MARKETING STRATEGY OF MASTER CARD

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