MasterCard’s Visionary Leadership

The hallmarks of MasterCard that would make it one of the strongest payment options in the world was entrenched on the principles of financial inclusivity. The financial inclusion approach pursued by the company entailed extending formal banking services to the vast majority of the population. The chief executive officer appointed to spearhead the reformations in the new MasterCard outfit, Mr. Banga emphasized on the need for MasterCard to intensify worldwide payment networks affiliated to electronic transactions. Another fundamental area for the company that needed strengthening was the development of more efficient financial institutions across the globe. Although the onset of Banga’s tenure got marked with remarkable partnerships around the world to expand financial services, improve efficiency of government benefits payments and the reduction of fraudulent financial activities, the market still needed better penetration. Alternatively, while elaborate emphasis on consolidating the market share became an urgent necessity, MasterCard’s leadership foresaw the need to promote a commercial agenda besides pursuing long-term opportunities to the underserved populations in new and emerging markets that where electronic penetration was seen as being slow. Therefore, the problem that MasterCard identified as an impediment to its future progress was pegged on the urgent need for financial inclusion. Thus the management would leverage on its effective public-private partnerships to towards the realization of a financially inclusive business model that would bring services to the underserved populations and which potentially possessed an unexploited market. 

Recommendation Prioritization

Electronic Payments over Cash Payments

            Top of MasterCard’s agenda was the need to fast-track the complete transitions from cash payments to electronic payments with a view of minimizing the circulation of physical money. Though the concept of electronic payments had been in existence for as early as 1950s the exponential growth of electronic modes of payment has been derailed because of the cash dominated economies such as Egypt and Nigeria. In order to overcome the rivalry posed by Visa, the consequences for MasterCard to shift more payments from cash to cards would mean more success. Prioritizing payments through electronic means would, therefore, prove MasterCard with a clear head start in consolidating the market share beyond the reach of its perennial rivals called Visa.    

Adoption of the Open-Loop Business Model

            The adoption of a secure network for transaction meant that MasterCard had to rely on the efficiency of open-loop systems that facilitated accurate information exchange between financial institutions which also participated in transactions with the cardholders and merchants.  The closed loop systems used by American Express and Discover implied that no banks directly contracted with cardholder and merchants. Invariably, since MasterCard did not issue debit and credit cards and instead licensed financial institution to provide to their respective customers the cards instead. Subsequently, the financial institutions, typically banks then created the accounts and issued the cards to the customers. With time, the cards have grown in popularity as MasterCard continued to aggressively participate in consolidating the market share especially against Visa which is regarded as the largest payment network.

Cost charges on Transactions

            Typically, MasterCard employed the use of electronic transactions that involved an intricate link with four diverse constituents which included the cardholder, the merchant, the cardholder’s bank and the merchant’s bank. The transaction process entailed a cardholder purchasing goods and services from a merchant who would then have the transaction routed to the issuer through a MasterCard for approval. The transaction’s information is then transmitted between the issuer and the acquirer and consequently facilitating the movement of funds between the respective banks through a third party settlement bank. The counterparties to the transaction exchanged two key fees called the merchant discount rate and the interchange fee respectively. When a cardholder made a particular purchase from a merchant, the acquirer then reimbursed the merchant the sales ticket amounts minus the merchant discount rate. Typically, the issuer reimbursed the acquirer minus an interchange fee within two days. Although MasterCard did not directly engage in charging fees to the merchants, acquirers effectively passed the cost of using the payment network through to merchants via the discount rate. Alternatively, MasterCard charged bank fees for each transaction over its network including fees based on the value of payments made on its branded products. Thus, MasterCard ended up benefitting tremendously as the number and value of sales soared.

Visionary Leadership

            Part of the prioritized recommendations was a visionary leadership that MasterCard espoused to steer it towards success. In Banga, MasterCard realized that they had finally landed a leader who resonated well with the company’s change policies. The appointment of Banga, therefore, implied that MasterCard was ready to find solutions to very challenge emerging from the payment models and competition from Visa. In order to bolster MasterCard innovation engine, the leadership launched an innovation lab that would check on the steps to accelerate decision making and prioritize diversity. The management emphasized on the importance of value addition by providing safety and security at every level and scale that local networks could not manage. It also became a priority to use the company’s capabilities to help drove effectiveness and efficiency in government payments and enhance financial inclusion in the society. Engagement with the government was not seen merely as a necessity but rather as an obligatory approach from a compliance and regulatory perspective.

Strategies Applied

            MasterCard employed three fundamental strategies which included growing the company’s core business of credit debit, prepaid and commercial cards. The company spent some time growing its market share that were already electronic. Secondly, the company focused on entering new business lines to enhance diversity through the use of big data insights to help it produce new revenue sources and increases stickiness, extend electronic payments to new applications and operate in entirely new regions as part of its quest to conquer new markets. Thirdly, MasterCard wanted to diversify its customers to include even the small banks and nontraditional customers. Financial inclusion as the ultimate strategy saw the company aim at going beyond cash and instead increasing the use of electronic payments worldwide.