MasterCard

What It Means

MasterCard is the second-largest brand of electronic-payment card in the United States after Visa. A MasterCard (like a Visa card) can be either of the two major types of electronic-payment cards: a credit card or a debit card. A credit card works according to a “pay later” system, whereby its holder makes purchases on a line of credit (a type of loan) issued by a bank or other financial institution and repays the amount of those purchases to the bank in monthly installments. A debit card (also known as a check card) works according to a “pay now” system, allowing its holder to access existing cash funds in his or her checking account electronically instead of paying with cash or a check (a paper form used to transfer money out of a bank account).

MasterCard is the brand name of MasterCard Worldwide, an international membership organization that is jointly owned by nearly 25,000 banks and other financial institutions. MasterCard itself does not issue credit to cardholders; the member banks issue cards under their own names. As such, MasterCard is also not involved in setting annual fees or determining interest rates (interest is a fee charged as a percentage of the outstanding balance) associated with the card.

When Did It Begin

MasterCard traces its origins to 1966, when a group of banks formed the member-owned Interbank Card Association (ICA) to compete with California-based Bank of America, which had begun issuing the BankAmericard (now Visa card) in 1958. The ICA’s answer to the BankAmericard was “Master Charge: The Interbank Card.” Within two years ICA had begun to expand into international markets, partnering with banks in Mexico, Europe, and Japan. In 1979 ICA renamed Master Charge as MasterCard.

At first, bank authorizations for credit card purchases were issued over the telephone. In the early 1970s, however, ICA revolutionized its authorization process, establishing in 1973 a centralized computer network that linked merchants (anyone receiving a credit card payment) with the financial institutions that issued the cards, and introducing in 1974 a magnetic strip on the back of its cards. The latter made authorizations more efficient while also reducing the possibility of fraud.

More Detailed Information

In the 1980s MasterCard began to expand its range of products and services, most notably by entering the automated teller machine (ATM) market. With the purchase of Cirrus, the world’s largest ATM network, in 1988, and the subsequent launch of the MasterCard/CIRRUS ATM Network, MasterCard delivered fast and easy cash access to its cardholders at more than 50,000 locations worldwide.

In 1991 MasterCard partnered with Europay International (a leading financial-services provider in Europe) to introduce Maestro, a global online point-of-sale debit network, which enabled cardholders to substitute MasterCard for cash and checks anywhere the MasterCard logo was displayed. This innovation greatly increased the use of MasterCard for ordinary retail transactions such as buying groceries or gas.

By the start of the twenty-first century, MasterCard’s services were available in more than 210 countries and territories, and its cards were accepted at more than 24 million locations worldwide. The three largest shareholders (thus the three most prominent banks issuing MasterCard credit cards) were JPMorgan Chase, Citigroup, and Bank of America. In addition to Visa, MasterCard’s main competitors were American Express and Discover.

MasterCard’s business model is three-tiered. First and foremost, the company is a franchisor, which means that it licenses its name and trademark (its franchise) to the financial institutions that wish to issue its cards. On this tier, the company’s primary activities include developing marketing strategies to enhance the strength of its brand name and setting terms of use with, and collecting fees from, its members, or franchisees.

On the second tier of its business model, MasterCard is concerned with processing the billions of transactions that occur with its cards around the world every day. The company must maintain its transaction-authorization network (the global electronic system that processes purchases) and keep pace with technological advances that will increase the speed and efficiency of the system.

On the third tier, MasterCard offers professional advisory services to its members. Introduced in 2001, MasterCard Advisors is a global consultancy program that tracks consumer behavior patterns and buying trends and provides other strategic solutions to help its members expand their businesses.

Recent Trends

In the 1990s, in spite of continued innovations and advances, MasterCard continued to trail behind its number one competitor, Visa, in terms of brand recognition and credit card billings worldwide. Perhaps MasterCard’s greatest strategic initiative at the turn of the century was the launch of its award-winning “Priceless” advertising campaign in 1997. The ads presented a list of goods and services with their accompanying price tags, followed by some intangible aspect of living well, such as reading bedtime stories to one’s child, which was acknowledged as “priceless.” Using the tagline “There are some things money can’t buy. For everything else, there’s MasterCard,” MasterCard successfully positioned itself as a friendly, down-to-earth credit card company that simply wanted to make buying things easier so that people could get on with the truly important things in life. The campaign, which ran in some 210 countries and 49 languages, dramatically increased MasterCard’s brand recognition and contributed to significant growth for the company.

In 2006 the company changed its name from MasterCard International to MasterCard Worldwide in order to place more emphasis on the global scale of its operations.