The hot trend in the payments industry is mobile electronic payments -- a way where customers can pay for things using their cellphone, rather than more traditional methods like credit cards, checks, or cash. Apple, Square, Paypal, and other companies are now offering mobile payment options to consumers and businesses in this increasingly crowded and competitive market. MasterCard (NYSE:MA), whose business is processing electronic payments, isn't just sitting back and letting this trend pass them by. The company's MasterPass service is well-positioned to help it take advantage of changing consumer behavior. For MasterCard, unlike some of the other companies in this space, mobile and digital payments don't represent a new business. MasterPass is nothing more than MasterCard using new technology to adapt its pre-existing business model to a changing market.
What is MasterPass?
Launched in early 2013, MasterPass is a digital payment service, an enhanced version of MasterCard's original mobile payment offering introduced a year earlier. The platform has two main components -- merchant checkout integration and partner wallet. The merchant checkout feature offers merchants and other service providers an easy, secure way to process digital payments on their website, app, or in a physical store using contactless payment. The partner wallet feature allows other companies to integrate MasterPass' into their own apps and digital wallets to allow their users to make secure payments from their phone or other mobile device using that app.
These two features essentially replicate the two end-user sides of MasterCard's existing payment processing network. Merchant checkout integration is the merchant or service-provider side, and it contains the tools for sellers to accept payment. Partner wallet is the side the consumer sees, allowing them to make payment. MasterPass includes features designed to make life easier for consumers, merchants, and card issuers.
Three stakeholders -- consumers, merchants, and issuers
For consumers, who are already familiar with MasterCard's brand, MasterPass may be a preferred alternative to other newer mobile payment options. MasterCard is a familiar brand in payments, people trust their security and consumer protections, and they may already have a MasterCard branded credit card in their wallet. MasterCard even offers a MasterPass branded payment app of their own, useful for consumers whose banks haven't yet integrated payment features into their own app.
For merchants, MasterPass offers an easy way to accept mobile and online electronic payments. Online merchants can integrate MasterPass into their website to allow for easy, lower-friction payments, and merchants with physical locations can use it to enable NFC payment via mobile devices in their stores. MasterPass includes MasterCard's payment security features such as tokenization and authentication that might be difficult for merchants, particularly smaller ones, to implement on their own.
Issuers, such as Bank of America, are critical partners in MasterCard's traditional business model, and MasterCard continues to serve them as digital payments evolve. MasterPass provides tools issuers can use to offer easy digital payment options to their customers. They don't have to build a payment solution from scratch, or maintain and update it over time, or worry about logistics like signing up merchant partners. They can simply take MasterPass and plug it in to their existing mobile app and website, instantly accessing the MasterCard network. MasterCard deals with the hard stuff like maintaining that network and keeping the payment system secure.
Issuers already working with MasterCard don't need to enter into another partnership to achieve their objectives in the mobile payment space. MasterCard makes it easy for them, while solidifying and enhancing that existing relationship. The issuer can use this new tool offered by a company they already work with. Importantly, from the issuer perspective, MasterPass doesn't require handing off the customer relationship to MasterCard. It's a back-end tool provided by MasterCard, integrated into the issuer's branded app. The issuer retains control over the customer relationship and experience.
Extension of the existing model
Perhaps in reading about MasterPass and how it works for MasterCard's customers and partners you thought "that sounds just like MasterCard's business model before anyone was paying for things with their cellphones." Well, yes. It does, it was, and it still is. A key implication of MasterPass' existence is that the rise of mobile payments has not changed or threatened MasterCard's core business model. Rather, it has provided the company with a way to extend and enhance that model.
To see how MasterPass makes sense for MasterCard, it helps to review its mission and core business. MasterCard's vision statement is simple: "A World Beyond Cash." The company's mission is just as simple. "Every day, everywhere, we use our technology and expertise to make payments safe, simple and smart," it says. While MasterCard is brand that most consumers would recognize, and the company does advertise to consumers, it isn't a consumer facing company in the way a retailer or restaurant is. MasterCard operates a vast electronic payment network, and pro vides tools and solutions to other businesses. Those other business partners are the ones that directly interface with consumers on a day to day basis. MasterCard is in the background, operating as a supporting partner that provides expertise for specialized tasks critical to the success of its merchant and bank partners.
Looking at MasterCard's business in those simple terms, you start to see how MasterPass isn't some brand-new product or service, or a "me-too" reaction to the relatively new mobile payment. Rather, it is a natural extension of the company's existing business that makes perfect sense in a world of mobile phones and online shopping.
MasterPass is another example of MasterCard doing what it has always done. MasterCard is not a company that loses sight of its mission, or pursues hot new trends that may prove to be distractions from the very profitable, very successful, core business. This is a company adopts new technologies to ensure that it can continue expanding its business as the world changes and its customers' needs change. Further, unlike other competitors new to the electronic payment world, MasterCard has been doing this for a long time. This expertise, acquired over decades, should give it an advantage as digital payments continue to grow. MasterPass should give investors confidence that MasterCard continues to be a great company to hold in their portfolios for years to come.