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ADMINISTRATIVE POLICY

GMGT 4010

Student Number: 7833379

Word Count: 2,228 words

Page Count: 9 pages

Instructor’s Name: Dr. Jie Yang

Section Number: A-01

Class Day & Time: Monday-Wednesday, 10:00am to 11:15am

MIDTERM TAKE-HOME EXAM.

FALL 2022

MasterCard has maintained excellent performance despite facing stiff competition from rivals such as Visa. The company also faces strict regulation by the government. It improved its revenue by 22% between 2020 and 2021. MasterCard can expand its market share further through strategic alliances. Boosting the company’s revenue can be done by expanding its product offering. Strengths such as having a strong brand image can be leveraged to increase the market share. Further success can be attributed to factors such as attracting and retaining top talent. MasterCard should uphold strategies such as expanding its product offering and adopting effective technology tools to compete in a cost-effective manner. It will take MasterCard 4 years to recover the investment made in the strategies. The external environment is highly competitive. Rivals such as Visa have low cost of capital, reputable brand identities, and reliable alliances for rapid expansion. The tendency by individuals to use cash over cards further compounds the external problems facing MasterCard. Using the latest tools and big data has helped MasterCard to grow its revenue at a high rate. Increasing operational scale can be done through franchising. Staying diversified is an effective way of mitigating organizational risk. MasterCard should use a market-based approach when starting operations to avoid overinvesting in highly competitive segments. Its strong financial base, low-cost market leadership and popular brand can help the company to remain highly competitive. Investing in the new market segments should be done iteratively to avoid making losses. MasterCard could face stiff competition in the new market segments.

Key opportunities

MasterCard has an opportunity to expand its market share by forming more strategic alliances (Nurmi & Niemelä, 2018). The company has a strong brand image and a good reputation for offering a secure network. This factor makes it easy to get willing franchise partners. The company also has an extensive policy to ensure that strategic partners uphold the key values necessary for rapid growth and expansion. MasterCard also has an opportunity to improve revenue generation by continuously eliminating competition. The company prevents market share loss by forming alliances with would-be competitors. Having the latest technology and hiring top talent will also enable the company to remain highly innovative. The competition in the financial sector from reputable companies such as Visa requires MasterCard to provide reliable market solutions proactively.

Key threats

MasterCard faces stiff competition in the fintech industry and stiff regulation in various markets (Machete, 2020). The company risks losing its market share to startups and larger companies such as Visa. MasterCard’s CEO, Michael Miebach, noted that cash transactions account for up to 85% of retail transactions worldwide. Lack of access to financial technology in some regions limits potential customers from using MasterCard’s network. The CEO noted that they face direct and indirect competition from online payment platforms like PayPal. Governments are increasingly pressuring financial companies to lower transaction costs and cater to vital issues such as customer data privacy. In the US, for instance, the Credit Card Competition Act (CCCA) aims to promote fair competition by directing banks to offer customers at least two card networks (Machete, 2020). The card services providers cannot be MasterCard and Visa together. The legislation limits MasterCard’s competitive advantage against smaller operators in the US. Organizations such as the Food Industry Association (FMI requires card service providers to lower the fees they pass to customers.

Key success factors

MasterCard requires identifying the main strategic avenues for continued growth and development. First, the company should attract, improve and retain top talent. The company should also maintain its reputation as a secure network that offers low transaction fees. Thirdly, the company should adopt the latest technology and leverage big data to better understand customers. MasterCard should also uphold the franchising strategy to enable it to expand rapidly in new markets.

The company uses big data to identify prime investment opportunities. The company has retained leadership in most market segments besides safely processing card transactions.

The company's reputable research and development department enables it to retain a competitive edge in developing new technology (Gilbert & Messenttt, 2020). The trait has enabled the company to retain a low operational cost despite expanding into new market segments. Issues such as data privacy, for instance, are managed securely and conveniently. Using technology tools optimally will enable the company to appeal to new customers and gain a market share over key competitors. The company offers biometric identification, among other technologies, to protect its customers from criminals. The company has also invested heavily in artificial intelligence to facilitate effective threat monitoring without disrupting service delivery.

MasterCard's broad product offering enables the company to remain competitive against key rivals (Gilbert & Messenttt, 2020). The company’s strategic plan involves creating new income channels instead of over-focusing on winning a larger market from particular rivals. The strategy is prudent since it lowers operational risk and increases the company's profits. First, the company offers customers an efficient way to manage their spending and allocate their finances well. Secondly, the company offers co-branded cards to increase customer loyalty and attract new ones. The company also offers technology aimed at supporting an open banking ecosystem. MasterCard also helps clients to identify reliable partners for customers looking for specific products. Offering seamless checkout in major stores further improves customers’ quality of life.

MasterCard has maintained good performance relative to ley industrial trends (Versteeg & Malina, 2019). The company stated that it is still in the recovery phase from the impact of the COVID-19 pandemic, which limited consumer purchasing power worldwide. The company generated $18.8 billion in revenue in 2021. The company increased revenue by 22% in 2021 from 2020. The company has maintained good performance with a debt ratio of more than 90% since 2018. The above-average debt ratio is common in financial companies since debt is a cheaper way to finance operations than equity. High debt is not an indicator of poor performance in the future. It only indicates that the company has cheap access to capital, which could help it pursue low-cost market leadership. MasterCard should only aim to maintain a high cash coverage ratio. The metric is critical for the company to use debt optimally in generating enough cash for operations. Competitors such as visa have equally high debt-to-equity ratios that often exceed 100%.

The company aims to attain its long-term goals by focusing on three main areas:

First, MasterCard aims to expand payments for governments, businesses, and consumers. The strategy will be attained by studying stakeholders well to identify their problems and feasible solutions (Suurnäkki & Rodríguez-Toquero Aymerich, 2019). Growth entails increasing operational scale by reducing competition. The company can continuously reduce competition by partnering with would-be rivals and remaining innovative.

Secondly, the company aims to increase revenues by expanding its product offering (Suurnäkki & Rodríguez-Toquero Aymerich, 2019). The aim is to improve the value offered to customers and drive transactions. For example, increasing the number of partners will expand the market share. The strategy will also attract customers seeking to manage their finances from a central location. Benefits such as cashback will help the company rapidly gain a competitive advantage in the new market segments.

Thirdly, the company targets to improve operations in the long term by investing in promising trends (Suurnäkki & Rodríguez-Toquero Aymerich, 2019). For example, the increased popularity of open banking systems has led MasterCard to avail APIs to support third parties seeking to offer financial services to their clients. The company has also embraced authentication technologies that facilitate cashless transactions. The company aims to gain a large share of the new entrants into digital cash management.

MasterCard's current performance may not persist in the future if particular issues are not addressed (Versteeg & Malina, 2019). First, the company should mitigate the threat posed by government regulations. The scrutiny by the Department of Justice (DOJ) could lead to more severe laws to limit dominance by MasterCard and Visa. The efforts by the government to prevent a duopoly could translate to restrictions on the market segments that major players such as MasterCard can operate in. other countries worldwide are also embracing stern measures. For example, the Reserve Bank of India blocked some websites from processing card payments until they met particular conditions. The prevalence of criminal activities such as money laundering on digital platforms could also lead to more regulations by particular governments. MasterCard also faces a huge risk of legal penalties in managing personal data. The company could also face high taxation in markets that favor local financial companies.

MasterCard also faces stiff competition from players such as Visa. Visa witnessed a 24% revenue increase between 2020 and 2021. The company also generated more revenue than MasterCard. Both companies have high debt levels to minimize the cost of capital. MasterCard should focus on innovation to retain high customer loyalty and expand its market share. Visa uses mergers and acquisitions to expand. The strategy is as cost-effective as the franchising business model used by MasterCard. MasterCard can only expand its market share in the future by constantly innovating and eliminating the threats present in its environment.

MasterCard should expand its service offering (LI, XIE & XIE, 2022). The company should limit operational risk by reducing overreliance on providing a safe network for transactions. The company should expand its cyber and intelligence solutions, consultation, managed services, payment processing, and loyalty. Therefore, the resources allocated to research and development should cater to channels such as cyber security more comprehensively. The company should also ensure that payments are seamless, safe, and intelligent. The time spent verifying customer identities, for example, should be reduced while guaranteeing the safety of the transactions done by a given individual. Expanding into new services is vital to mitigate the financial sector's risk posed by government regulations. Improved analytics could attract new customers to improve their financial management using data.

The company should also invest in the factors that have contributed to its success, such as having a productive workforce (Gilbert & Messenttt, 2020). The workforce's skills, mindset, experience, and integrity are vital for continued good performance. The company should retain a diverse workforce to appeal to customers across the globe. The company should also uphold inclusion because it aims to improve financial access to disadvantaged groups in society. The company should also maintain a good brand identity to accelerate growth. Dominating the market in issues such as seamless customer service could prevent MasterCard from losing market share to key rivals and innovative startups. Investing in big data should be accompanied by world-class machine learning and artificial intelligence to adhere to government regulations cost-effectively.

The following analysis will indicate the financial and strategic value of the proposed strategies. The review will calculate the strategy’s net present value and the time taken to recover the investment made. MasterCard should invest $10,000,000 in both strategies.

SWOT ANALYSIS

A SWOT analysis is necessary for the top management to devise strategies which are aligned with prevailing factors in the business environment.

MasterCard should leverage its strengths, such as having a reputable brand and strong financial base, to implement the proposed strategies. But, MasterCard should constantly scan the environment for threats that could limit strategic growth. Specifically, the top management should cater to the following factors:

First, MasterCard should use a market-based approach when expanding to new segments. The approach must avoid committing time and financial resources to small markets. Secondly, MasterCard should retain its current strategies that have proven to be effective. Changes in processing, such as recruiting, should be limited to improvements and not overhauling the current HR strategy.

The proposed recommendations could have adverse effects if they are not implemented well. Investing in new services, for instance, does not guarantee MasterCard higher profits, given that it could face stiff competition from the new competitors. The services the company has invested in, such as managed services, are dominated by firms with a huge financial base, strong brand identities, and notable customer loyalty.

The company should therefore use an iterative approach when adopting the new strategies. For example, the company should base its hiring decisions on market needs. Managers should use reliable key performance indicators to track performance. The strategy will manage risks before they escalate to significant losses. The approach will cater to unforeseen factors that could have otherwise caused losses.

Exhibit 1: Internal (VRIO) Analysis

With more people gaining financial access, it is imperative that MasterCard capitalizes on the opportunity within this power vacuum

Exhibit 2: Financial Analysis

Exhibit 3

CURRENT STRATEGIES AND THEIR IMPLEMENTATION

Name of the Business Strategy:

• “Grow, Diversify and Build”

Customer Needs:

• Payment Processors

Customer Groups:

• Private Citizens

Basis for Competition: Diversification and Technological Innovation

Corporate Strategies:

• Strategic acquisitions to advance technological capabilities

• Strategic Alliances with decentralized currencies and governments

Placement in the Value System:

• Facilitator

Global Strategies:

• Expansion into countries with newfound financial access

Exhibit 4: COMPREHENSIVE STRUCTURE OF A STRATEGIC ALTERNATIVE

Name of the Alternative or Strategic Goal Identifier:

• Expansion into further under-developed nations with collaborative partnerships

Customer Needs

• Citizens and governments with newfound financial access require processors

Customer Groups

• Government institutions and private citizens

Basis for Competition

• Differentiation

  • Customers responsiveness

Corporate Strategies

• Strategic alliances with local government

Placement in the Value System

• Facilitator

Other

• Investment into local areas may beneficial to increase technological capabilities

Key Issue(s) Addressed by this Alternative

• Increased financial access in developing areas

FEASIBILITY JUSTIFICATION FOR THIS STRATEGIC ALTERNATIVE

Environmental Opportunity: Newfound requirement of financial services

Environmental Threats, Risks: Technological limitations of developing nations

Present Corporate Attributes relevant and sufficient: Digital payment platforms

Exhibit 5: Strategic Alternative NPV

MasterCard Projected Revenues

EXHIBIT 6: EVALUATION OF ALTERNATIVES BY CRITERIA

The main difference between the two strategies in the interaction with local jurisdictions. One requires an amicable relationship to create a video environment, while other would put investment in decentralized currency.

Exhibit 7: Implementation Schedule / Action Plan

• Multi-National Expansion

  • Create a government relations team

  • Schedule a productive consolation with governments looking to expand financial services

  • Identify where technological upgrades will be required

• Strategic Investment in Blockchain

  • Identify key players in the Blockchain industry

  • Distinguish how each could fill a void in existing expertise

  • Through partnerships, analyze how MasterCard could use existing assets to improve upon Blockchain technology.

As we distinguished in the NPV analysis, each of these action plans has a time horizon of five years, Each point describes the steps, in order, required to be successful.

Gilbert, P., & Messenttt, J. (2020). Payment Services in the EU: Price Regulation to Protect a Duopoly. clj, 2019, 06.

LI, D., XIE, N., & XIE, Z. (2022). Facing Both Challenges and Opportunities: How Can Financial Service Firms Survive Under the Pandemic? SOAR Analysis of Three Leading Firms in the Financial Service Industry. Psychology, 12(7), 509-519.

Machete, J. M. V. C. D. (2020). Mastercard under threat: measuring the risk of a data breach (Doctoral dissertation).

Nurmi, J., & Niemelä, M. S. (2018, November). PESTEL analysis of hacktivism campaign motivations. In Nordic conference on secure it systems (pp. 323-335). Springer, Cham.

Santiago, R., & Angel, L. (2018). New Payment Methods and Insufficiencies in their Regulatory Scheme. JL & Cyber Warfare, 7, 101.

Siragusa, M., Dolmans, M., Subiotto, R. F., Gilbert, P., & Messent, J. (2019). Payment services in the EU: price regulation to protect a duopoly. Competition Law Journal, 18(4), 175-189.

Suurnäkki, S., & Rodríguez-Toquero Aymerich, J. (2019). MasterCard II: The Commission Pursues Its Antitrust Enforcement in Cross-Border Payments. Journal of European Competition Law & Practice.

Versteeg, R., & Malina, A. (2019). Collective proceedings in the Competition Appeal Tribunal: taking stock and looking ahead. Competition Law Journal, 18(3), 104-115.