Mastercard’s Place in the Payments Ecosystem

The Nascent Credit Card Industry

In 1958, Bank of America launched BankAmericard, the first revolving-credit card with universal merchant acceptance, in Fresno, CA. Although BankAmericard eventually evolved into Visa, one of the dominant players in today’s global payments ecosystem, it had a very inauspicious start as it was plagued with significant delinquency and fraud issues. By 1961, the problems were resolved and BankAmericard became profitable, but Bank of America kept the profitability a secret and allowed negative impressions of the program to persist to discourage competition.

By 1966, other banks became aware of BankAmericard’s success and started to introduce their own credit cards. According to Electronic Value Exchange: Origins of the VISA Electronic Payment System, by David Stearns, from 1960 to 1966, there were only 10 new credit cards introduced in the United States, but from 1966 to 1968, approximately 440 credit cards were introduced.

At the time, federal laws prohibited banks from establishing branches across state lines and many states had regulations that limited the ability of banks to operate through branch locations. This made it difficult to achieve economies of scale, so banks formed regional bankcard associations which handled back-office tasks and enabled the banks to combine their merchant networks so cardholders could use their cards in more places.

Mastercard is “Born”

In 1966, Marine Midland launched its own regional bankcard in upstate New York after Bank of America declined its request for a regional BankAmericard license on the grounds that the bank was too big. Shortly thereafter, Karl Hinke, a Marine Midland executive, met with representatives of several other banks, resulting in several banks and regional bankcard associations agreeing to join forces and establish the Interbank Card Association (ICA) – the entity that eventually evolved into Mastercard.

By the end of 1967, ICA had 150 members and Hinke was ICA’s chairman. ICA was not dominated by a single bank; member committees were created to run the association. The committees established rules for authorization, clearing, and settlement as well as handling marketing, security, and legal aspects of running the organization. In 1969, to create the nationwide brand awareness needed to compete against BankAmericard, ICA developed a new national brand, “Master Charge: The Interbank Card” and created its iconic brandmark – the overlapping yellow and orange circles.

Growth and International Expansion

In 1968, ICA began to expand internationally. It formed an association with Banco Nacional in Mexico, an alliance in Europe with Eurocard and the first Japanese members joined the association that year as well. By the late 1970s, ICA also had members from Africa and Australia, and it changed its name to Mastercard International to reflect its commitment to international growth. Further expansion into Asia and Latin America followed in the 1980s and in 1987, Mastercard was the first payment card to be issued in the People’s Republic of China. In 1988, the first Mastercard was issued in the Soviet Union.

In 1985, Mastercard acquired the Cirrus ATM network and it launched Maestro, the world’s first online point-of-sale debit network, in 1991.

In 2002, Mastercard merged with Europay International and converted from a membership association to a private share corporation to prepare for its initial public offering (IPO).

Transition to a Publicly Traded Corporation

On May 25, 2006, Mastercard held an IPO and became a publicly traded corporation, ending control of Mastercard by its member banks. Today Mastercard’s largest shareholders are institutions. According to CNN Money, the top ten owners of Mastercard are: The Vanguard Group (7.63%), BlackRock Fund Advisors (4.43%), SSga Funds Management, Inc. (3.66%), T. Rowe Price Associates, Inc (2.30%), Capital Research & Management Co (2.19%), Fidelity Management & Research Co (1.96%), JP Morgan Investment Management, Inc (1.93%), Geode Capital Management LLC (1.81%), Capital Research & Management Co (1.40%), Wellington Management Co LLC (1.30%).