Mastercard

Mastercard is the second-largest payment network globally after Visa. The revenue model of Mastercard’s core business is to take a small portion of the fee charged to merchants (35 basis points of the 200 basis points charged to merchants). Ninety million merchants accept payments via 3bn cards issued to consumers. The Mastercard network enables transactions to occur by creating trust between parties that don’t know each other. Consumers get peace-of-mind that they can claim for chargebacks if products or services aren’t as advertised. Merchants are assured of receipt of payment, are supported by payment processors who make the payment process frictionless and are provided with infrastructure to reduce fraud.

Mastercard has been developing new payment methods to support new payment flows besides its existing consumer to merchant payments. Examples of these are business-to-consumer payments (insurance disbursements), B2B payments (platforms paying merchants or merchants paying suppliers) and P2P payments (consumer to consumer). The card-based B2B addressable market alone is half the size of the traditional consumer-to-business market volumes.

Besides the attractive market position and addressable market, the payment networks revenue are beneficiaries of inflation as they charge a percentage of the value of payments through the network. Their relatively low-cost bases, which are largely fixed cost driven would be less impacted than many other businesses in the market. Mastercard is trading at a 24 times forward multiple (which is still below normal as its earnings are geared to travel and many travel corridors are still below-normal) and should grow earnings per share in the high-teens over the next five years.