Vincent’s Blog: How to spend it: MasterCard, Maestro and Cirrus

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Let it roll, be happy, swipe that card and worry about the consequences later. Woohoo, life is sweet and tomorrow is far away. Digital money flows so much easier than cash, especially online or behind the bar. You know it! Forget that golden rule for gaining wealth by delaying consumption now in order to consume more in the future. Nah, do the reverse man, don’t be a fool, spend now and pay later. Life is short and everyday somebody is offering you a bargain you cannot refuse. Credit rocks! It is soooo hard to resist a bargain and it does not matter whether you are in Chiang Mai, Saint Michel or Bariloche, you can buy it.

You probably know there was a time when credit cards did not exist. You probably don’t know that time was not so long ago. Bank of America developed the first all-purpose credit card in 1966, which became Visa. Raymond Tanenhaus and Stanley Benovitz, two entrepreneurs, created a similar system, which they sold to United California Bank in 1966. This became MasterCard. Competition between American Express, Visa and MasterCard fueled strong growth and created an international network of banks, merchants and consumers to settle transactions. MasterCard ultimately was owned by a cooperative of member banks. In 2006 the member banks sold their shares through an initial public offering (IPO) priced at $5.5 billion on the New York Stock Exchange. MasterCard subsequently acquired Maestro and Cirrus and is now worth almost $100 billion, 17 times its initial IPO price or a 1700% gain. $95 billion profit in just eight years: so much for delaying consumption now in order to consume more in the future…

Slowly but surely the rest of the world is catching up to the mature markets of Europe and the United States. All eyes are on China, which is predicted to have four times as many inhabitants than the U.S. by 2020. Did you know that China’s share of the global Gross Domestic Product (GDP) reached a whooping 33% in… 1820? In 1950 its share dropped to a low 4% and is now estimated to become the largest global economy in 2020. Did you know that only very recently, Alibaba, China’s equivalent of Amazon, clocked almost $10 billion in a single day online sales event, which needs some form of credit card or electronic payment system? Did you know that only this year, China has promised to open up its market for clearing credit cards creating an huge opportunity for companies like Visa and MasterCard to expand in China

Here are some things we can learn from MasterCard, which are… “Priceless”: MasterCard has no debt; 50% of its balance sheet assets are cash; its profit margin and Return On Invested Capital (ROIC) are far above average; it has huge potential markets in China and India and there are not many new competitors who can break into the well established credit card market and its global technology network. MasterCard’s transaction volume has likely a long way to rise. It seems to me a share in MasterCard looks so much better than the plastic itself… do you agree?

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