ABA Banking Journal - January 2008 - (Page 30) CARD STRATEGIES is a good thing for this industry, and any shift in thinking or product design that gives bank card issuers new options will get everyone continuing on a path of innovation,” says Robert Hammer, CEO of RK Hammer, Thousand Oaks, Calif., a longtime consultant to the card sector. Perhaps, then, it’s better to reframe the matter of IPOs and potentially different competitive postures in terms of broad industry challenges. Like today’s performance indicators, which are mixed in the aftermath of credit quality challenges facing many consumer segments, the longterm outlook for the credit card industry and payments generally is an unknowable mix as well, hinging on such factors as the fate of the alternative payment upstarts like PayPal or BillMeLater; changes in the cross-border business that has contributed much to profitability for both MasterCard and Visa; the uptake rate of mobile banking and payments; and shifting merchant practices and consumer habits. “Competition is a good thing for this industry, and any shift in thinking or product design that gives bank card issuers new options will get everyone continuing on a path of innovation” — Robert Hammer, R.K. Hammer Building global empires In the simplest sense, MasterCard’s 2006 IPO, which raised $2.4 billion, and Visa’s intention to raise $10 billion (rescheduled for the first quarter), is really about amassing capital and letting bank owners benefit from years of infrastructure and business development, consultants say. MasterCard—which operates in 210 countries and territories—serves nearly 25,000 member financial institutions. As the second-largest payment system in the U.S, it provides the transaction authorization network, and the marketing, for its credit and debit card and Maestro (debit card) brands. As part of its operating model, MasterCard establishes guidelines for use and collects fees from members and also operates the Cirrus ATM network. Yes, it has been noted in numerous articles citing MasterCard’s situation, some motivation for a public MasterCard could have been a defensive play for the payments provider to gather funds, given the regular litigation that the industry attracts. (The most recent suit, brought by American Express, regards alleged anticompetitive practices and will be brought to trial in September 2008.) Others point out that banks might have wanted to distance themselves from the reputation 30 JANUARY 2008/ABA BANKING JOURNAL risks associated with litigation. But on the whole, says Hammer, MasterCard has developed into a valuable payment system that is worth more as a public, transparent company. Marc Sacher, managing director of Auriemma Consulting Group, Westbury, NY., points out that support of global commerce is really the brass ring in an industry that is making its gains the geographic way. Chris McWilton, president, global accounts, MasterCard Worldwide, says that the IPO allowed the company to address the perceived conflicts of interest in ownership structure and realign its leadership to bring even more to the consultative sales and service model that relies on local knowledge, whether the market in question is Chicago or Singapore. “By leveraging a unified global structure, a strong brand, innovative payment solutions, an advanced processing platform and our professional services organization MasterCard advisors, we will be able to build a faster, more efficient link among financial institutions, businesses, cardholders, and merchants worldwide,” says McWilton. In the first half of this year, the Purchase, N.Y.-based giant posted $467 million of net income, or $3.42 a share. Analysts had predicted earnings to grow 20% by next year, according to Reuters Fundamentals, although its current legal issues are among many current stressors that could dim earnings prospects. Visa, which doesn’t yet release earnings data, saw more than $3.34 trillion in payments and cash volume conducted on 1.4 billion cards. It also sees a new global future in the demands and capital accessible as a public company. Currently operating the world’s largest consumer payment system, it too licenses the Visa name to member institutions, which issue and market their own Visa products and participate in the VisaNet payment system for authorization, transaction processing, and settlement services. Still, ownership means differences And yet, a few analysts have pointed out that as public companies, with ties cut from card association roots, MasterCard and Visa will answer to shareholders first, not all of whom are banks. Paul Turgeon, vice-president of Dove www.ababj.com/subscribe.html http://www.rkhammer.com/ http://www.rkhammer.com/ http://www.acg.net/index.html http://www.rkhammer.com/ http://www.doveconsulting.com/ http://www.ababj.com/subscribe.html
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