Consolidating the value chain is a core success factor forprepaid profitability. Green Dot would like to buy a bank. InCommacquires a processing platform. Kroger and Simon Group becomeProgram Managers. Owning all the components drives out costs. Butonly the network can potentially consolidate everything – and itappears both Visa and MasterCard are well on their way to doingjust that.
MasterCard and Visa have introduced processing servicesthat compete against prepaid processors ( VisaDPS and MasterCardIPS). Both MasterCard and Visa have acquired eCommerce acquirers(Datacash and CyberSource respectively). Now MasterCard hasacquired the Program Management functions of Travelex. These arerelatively clear cut data points that support the theory thatMasterCard and Visa need to expand further into the value chain tosatisfy their stockholders hunger for faster growth.
But MasterCard indicates that its partners in the US neednot be concerned. Entering the program management market is simplyneeded to speed up prepaid deployment in the rest of the world, notfor here in the USA. But that position doesn’t eliminatecompetition between MasterCard and its domestic ProgramManagers.
While Program Managers may be hard to findinternationally, both processors and program managers here in theUS are feeling cramped and looking for business internationally. SoMasterCard will certainly be competing with US program managers andprocessors in a race to capture international marketshare.
Perhaps we should have known this was MasterCard’s plan.This announcement is very similar to the firestorm MasterCardcreated when they announced the JV in Europe with Accor to createPrepay Solutions. That was particularly hard for some US processorsto swallow because MasterCard stated that all RestrictedAuthorization Network solutions would need to be executed by thenew JV. US processors with significant expertise in RestrictedAuthorization Networks that already had presence in Europe wereunderstandably upset and the uproar was loud and furious. Thisuproar quickly subsided and I assumed that MasterCard eliminatedexclusivity – although I don’t know this for a fact.
With this announcement MasterCard has created itself anethical and communications nightmare. To calm US processors andprogram managers MasterCard needs to significantly ramp up itscommunications efforts but I doubt any increased communicationswill be able to overcome human nature. Every US Program Managerwill analyze all future actions and statements from MasterCard fromthe perspective that MasterCard is, or may be, a competitor. Sothis puts MasterCard in an extremely awkward situation. Tocounteract the concerns of processors and program managers shouldexplain how its actions are not competitive. Let’s play thatout:
MasterCard establishes a new prepaid operating regulationand US program managers will try to determine how that newregulation will tip the table to benefit Travelex/MasterCard. Ifthey look hard enough, I bet most changes will have some suchperspective. If MasterCard turns down a prepaid program; programmanagers will perceive it as MasterCard protecting that market foritself. And so it goes; every announcement from MasterCard will beanalyzed through this new competitive lens and I’m not sureMasterCard can afford to implement corrective surgery on the entireindustry.
The bottom line is this: In an increasingly global marketMasterCard has made an announcement that it will compete with itsprogram managers. While I haven’t had time to call any programmanagers yet, I predict the largest US MasterCard processors andprogram managers will be extremely wary and since perception isreality, if MasterCard doesn’t take steps to address this large USprogram managers may start to work more closely with Visa – untilVisa makes the same play.
Who said prepaid is boring!