COMMENTARY: PAYMENTS Ron Delnevo, Chairman of Cash and Card Consultants, ponders whether his fortunes would have been better served investing in a priceless work of cards, not art! I have always loved art and, in particular, paintings. My love is purely for originals. I like to own something unique. My budget doesn’t extend to buying old masters but, over the years, I have acquired a number of canvasses. Now, I must make clear that I have bought only works that I have liked. My first priority is getting pleasure from having them hanging on a wall that I also own. However, in buying more expensive items, I have also had one eye on the potential for them to be good investments. Hope springs eternal, as they say! It just so happens that, in late 2005, I bought what I viewed as a lovely landscape, painted by an English artist named David Smith. I had wanted one of his creations for quite a while and finally took the plunge by investing around $10,000 in a canvas depicting a particularly idyllic stretch of the River Chelmer in Essex. So, there I was, in 2006, proud owner of a $10,000 work of art – and an investment. How does my investment now compare with others I could have made at around the same time? Well, since I work in the payments industry, I thought of that industry first for a comparison. Happily, there was an easy option for the purposes of comparison, namely Mastercard, which went public through an Initial Public Offering (IPO) in May 2006. Taking account of subsequent share-splits, my $10,000, invested in Mastercard in 2006, would have left me the happy owner of 2,600 Mastercard shares
today. As I write, each Mastercard share is quoted on the stock market at $331, leaving my 2,600 shares worth a very cool $861,000. Plus I would, over the same period, have earned more than $10,000 in dividends. So, one way to look at it is that the dividends alone would have given me a 100 per cent return on my investment over the last 14 years. Of course, I alighted on an exceptional stock for this comparison. It happens that Mastercard has even outperformed Apple in terms of returns for investors. Needless to say, while the revelation of Mastercard’s stock market performance answered the question ‘how much?’, it also begged the question, ‘why?’. One reason is rather obvious. Though Mastercard did go through an IPO, the company was no new and naïve kid on the block. In fact, the history of Mastercard dates back to 1966, the year England won the football World Cup – yes, that long ago! – and 12 months before the world’s first ATM was installed in June 1967. Of course, corporate names sometimes change over the years, so what started as the Interbank Card Association didn’t adopt the name Mastercard until 1979, the year the UK elected its first female Prime Minister. I am sure that, in Mrs Thatcher’s famous handbag, there would have been at least one Mastercard, adding a little weight when she used her accessory to deal with errant cabinet ministers. Mastercard used its new name to good effect, becoming the first payment card to be issued in the People’s Republic of China, long before the planet’s first debit card was issued in 1987 – and prior to the awful stock market crash of 1988, However, the next 20 years were not ones in which Mastercard hit the headlines. True, the now famous ‘priceless’ advertising theme first started appearing in 1997, but, apart from that, the only significant piece of corporate deal-making that really impacted Mastercard’s long-term
prospects was its alliance, then integration, with Europay International in 2002.
Growth ambitions In 2005, the year my UK ATM company Bank Machine was acquired by Cardtronics, I remember discussing with my fellow directors that the activities of Mastercard (and Visa) would be likely to have an adverse impact on cash usage over the next few years. We certainly got that one right! Mastercard achieved warp factor growth shortly after its 2006 IPO. Between 2008 and 2012, it integrated with Europay France and acquired no fewer than four other companies: Orbiscom; DataCash; Trevica and Truaxis. But, in fairness, the most important acquisition Mastercard made in this period was its shiny and dynamic new CEO, Ajay Banga. This recruit had worked for Citigroup for many years and it didn’t take him long to make his mark at the card giant. He did so rather dramatically, just six months after his arrival, by declaring war; Mastercard’s keynote ‘War on Cash’ had begun! More acquisitions followed at steady intervals. Over the next few years, the following companies succumbed to Mastercard’s charms: Provus; C-SAM; PinPoint; 5one; NuData Security; VocaLink; Trans-Fast (now TF Pay); Brighterion; and Nets. That’s roughly one acquisition a year since Ajay Banga arrived at the company. The CEO is now 60 years old – he certainly didn’t waste his 50s! Buying so many companies would normally set the alarm bells ringing – some organisations acquire in this way to disguise the fact that their core business is in decline. Not in Mastercard’s case, though. It has mainly bought new platforms or, in some cases, businesses that added to its corporate skill-set. As well as acquisitions, Mastercard has been able to form alliances with a number of major partners, including China UnionPay, which lays claim to being the world’s biggest card issuer. Mastercard
The plastic billionaire and Old Master cash 24
ThePaytechMagazine | Issue 7
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