Less than a decade after the creation of Visa, a few banks got together to launch a competing network, which would eventually be known as MasterCard.
The year is 1965 and BankAmericard (the predecessor organization to what is now Visa) had become a success. Their member banks had issued millions of BankAmericard in California and had begun licensing the program elsewhere.
Meanwhile, over in Kentucky, a competing organization was forming on the horizon. Entrepreneurs Raymond Tanenhaus and Stanley Benovitz had created similar system and sold it to United California Bank in 1966.
That same year, the bank teamed up with several California banking organizations: Crocker National Bank (of CA), Wells Fargo, and Bank of California. Together they launched the Interbank Card Association (ICA).
ICA offered reciprocal acceptance of credit cards among the participating banks. For example, Bank of California would accept card transactions on behalf of Wells Fargo and vice-versa.
1969 = a big year in history
First of all, the name was changed to “Master Charge: The Interbank Card” when Marine Midland Bank (today, after many acquisitions, is known as HSBC Bank USA) came on board.
The second big milestone was the merging of the Everything Card with Master Charge. The Everything Card was a competing product operated by First National City Bank (the predecessor to Citibank).
Lastly for 1969, it was during the year when they adopted the overlapping orange and red circles as a new logo… an image which would eventually become known the world over.
Master Charge becomes MasterCard
A decade later the name was changed to MasterCard in 1979.
Growth continued throughout the 80’s but it didn’t always come easy. Visa had a considerable head start on the international markets and was clearly the frontrunner in the credit card world.
However under the guidance of President Russell E. Hogg (who was a former executive of American Express) the company crafted a number strategies which would help MasterCard grow immensely:
- In 1983 the Emergency Card Replacement program was launched. That same year, a laser-etched hologram was added on the front of cards to help thwart fraud.
- In 1985 the number of MasterCard accounts reached 120 million worldwide. A business card for the international market was also introduced.
- In 1986 the company entered the Pacific Rim market, opening an office in Hong Kong and eventually becoming the first credit card issuer in China.
- In 1988 the acquisition of Cirrus (the largest ATM network in the world) gave MasterCard a new revenue stream and greater acceptance.
By the early 90’s MasterCard had a worldwide debit system in place (Maestro) which competed directly with Visa’s Interlink.
As the decade progressed not only did MasterCard chip away at Visa’s market share, but they also ventured into areas where plastic had previously never been accepted, such as taxicabs, supermarkets, and convenience stores.
Prior to the company’s IPO in 2006, MasterCard was owned by its member banks – all 25,000+ of them! However after going public on the NYSE, many of the banks sold their stock.
Now they probably wish they didn’t, because as of October 5th 2013, its share price is well above $650 – that’s almost 17x higher than the initial public offering price of $39/share!
During this time the name was changed to MasterCard Worldwide to confer a more global image. The corporate logo was also modified to include a third translucent circle, which overlaps the original two. However the logo on MasterCard credit cards and debit cards remains the same.
The company as we know it today
Their headquarters are out of Purchase, New York and contrary to what many people believe, MasterCard has never issued the cards nor loaned the money directly to consumers or businesses. The participating banks that are authorized to issue MasterCards are responsible for doing both.
MasterCard generates revenue from transaction fees paid by merchants who accept their cards (called interchange) as well as the fees that participating financial institutions pay to be a part of the MasterCard program.
With a market capitalization (company valuation) of over $90 billion in 2015, they’re roughly two-thirds the value of Visa. But as their international growth continues, it’s anyone’s guess who will be number by the end of the decade.