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Executive Summary

MasterCard has continued to flourish despite facing severe competition from Visa, Financial Institutions, and new emerging payment methods in the global payment Industry. Among the players in this business are Visa, PayPal, Alipay, Apple pay, and Google Wallet, as well as other worldwide payment companies. Mastercard reported a growth rate of 23.4 percent, up from negative 21 percent in 2020. The Covid-19 pandemic largely caused this fall. MasterCard has been able to hedge against competition from digital wallets by getting into strategic alliances and partnerships instead of viewing the players as rivals.

MasterCard can boost its market share by forming alliances with other companies. Mastercard can leverage its innovation, financial strength, and technological expertise to increase its market share. MasterCard maintains its competitiveness and increases its market share by diversifying and expanding its product portfolio and changing its marketing focus to regions not well exploited. The recommended plan includes expanding payment services, particularly value-added services, in the existing market. The long-term implications of the approach include an increase in the revenue stream, a rise in the profit margin, and an increase in the annual dividend payout.

The non-financial implications include an improvement in reputation and consumer happiness and a reduction in the risk connected with payment transactions. Due to the high value of the firm's debts, the strategy will be financed by retained earnings and equity. Any more loans would greatly increase the firm's risk of insolvency. A budget will be created to account for the costs associated with implementing the proposed strategies. The expected benefits of the chosen strategy include increasing revenue streams, improved brand reputation, and market share enhancements.

II. External Assessment: Opportunities and Threats

The players in the global payment industry are accountable for network-based card transaction processing. The payment industry services segment includes consumer bill payments, mobile banking applications, B2B payment facilitation, and facilitating disbursements and remittances. The leading companies in this industry have a global presence in nearly every country.

In the 21st century, commerce shifted to digital platforms, and consumers used at least one online payment method. Therefore, as the global e-commerce industry continues to grow, global payment companies have the opportunity to leverage e-commerce growth to increase market share and enter into partnerships to enjoy the large pool of consumer base (Andriotis, 2018). The key success factors include human capital, entering to partnership and mutually beneficial arrangement to expand the network so as to capitalize on e-commerce growth.

The consumer change in attitude and perception toward online purchase, and online transaction creates a new market opportunity for companies in the global payment industry. The global payment industry can grow its revenue streams by introducing and developing diverse product services. Consumers are more likely to utilize digital wallets to pay for goods and services than in the past. The key success factors include delivering services to customer as requested and creating innovation lab to introduce services that meets the changing needs of its customer base.

The global payment industry players experience high competitive threats from well-established firms competing in all payment categories. Some of these businesses have different business models that provide them with unique pricing advantages (Andriotis, 2018). Low switching cost, entry barrier and threat of substitute create price and fees pressures. The success factors that could alleviate the threats include partnerships with other players within the industry, acquisition of startup digital wallet firm and strategic alliances. These factors could help address competitive risks and reduce price pressure threats.

III. Internal Assessment: Resources & Capabilities

MasterCard Inc. is one of the world's major payment networks and a leading provider of financial services. MasterCard is a global payment industry that provides many payment solutions and services, such as automated clearing houses, multi-rail payment, and acquiring and issuing banks communicating over the card network to authorize transactions. MasterCard Inc. is a multinational payment company with a presence on almost every continent.

One of MasterCard's strengths is its financial strength based on the company's sales success. From 2010 through 2020, the company generated sustained sales and net income growth. Strong financial resources show the company's capacity to fund research and innovation and its ability to recruit top talent. The company's financial performance demonstrates distinctive, durable competencies that will be advantageous in the long run.

MasterCard invested a lot in developing a robust product portfolio that required innovation and the development of new methods for obtaining market share. Wide and diverse services diversify the existing offering to mitigate product risk. Included in the value-added product are data analytics and cyber security. This product will be valuable for satisfying varied market needs and diversifying revenue streams. The extensive and varied product portfolio provides MasterCard with a unique competency that it can employ to remain competitive and give consumers exclusive offerings (Andriotis, 2018).

Involvement in claims and legal actions is a weakness associated with MasterCard Inc. MasterCard faces various lawsuits that will cost the company $73 million in 2020 and $94 million in 2021. This suggests an increase in legal spending, which could negatively impact the firm's bottom line. MasterCard should utilize its talented employees to advise the corporation on interchange fees and privacy regulations to avoid incurring unnecessary legal expenses.

IV. Internal Assessment: Financial Performance and Future Financial Capacity

According to Exhibit 3, MasterCard's constant revenue increase from 2018 to 2020 suggests strong financial health, even if the company recorded a major revenue and net profit fall of 9 and 21 percent in 2020. In 2021, the business reported positive revenue and net income. The firm's time interest earned ratios show that it will be able to pay all debt costs more than 24 times in 2021, compared to 39 times in 2018, indicating a fall in capability despite the firm's stability in paying all due debt costs. The debt ratios reveal that overall debt is equivalent to 80 percent of total assets, indicating an increase in debt value. The equity-to-debt ratios indicate that MasterCard has four times as much debt as it does equity, indicating a significant level of leverage. The current ratio is more than one, showing that the company has steady current liquidity, which is critical for day-to-day operations. Since the company's obligations are already substantial relative to its assets, acquiring financing through borrowing may be difficult. However, since the equity share is low, corporations can raise more equity capital through the security market. However, Equity financing is expensive since it dilutes payable dividend per share, and increasing cost of capital. It is anticipated that the corporation will record increasing revenues and net profits.

V. Current Strategies and their Implementation

MasterCard's business strategy is to increase payments by concentrating on its core network to enable payment flows for customers, businesses, governments, and others, thereby providing customers with options and the flexibility to transact across different payment rails (Furr & Shipilov, 2018). The objective is to diversify the product line so that the company's core revenue growth is stifled and has another growth stream. MasterCard's functional strategy involves investing in human capital development by recruiting talented and Technological savvy with diverse experience. This talented workforce will have the technological know-how to assist companies in establishing grounding-breaking services and achieving their immediate objectives of closing deals and educating clients. MasterCard's global and corporate strategies include diversifying new products into new markets and locations. This plan will assist the company meets the needs of a diverse group of customers, including financial institutions, retailers, the government, and digital players while expanding its geographic reach. MasterCard will support this plan by enhancing new network capabilities, such as increasing digital identity-related services and employing banking and open data knowledge.

VI. Key Issue(s) of the Case

MasterCard Inc.'s ongoing legal is the most pressing concern. For instance, the firm faces a legal battle associated with facilitating and managing payments and fees. The corporation is accused of colluding with the Pornhub Corporation to disseminate unlawful photos (Haines, 2020). MasterCard's brand reputation may be affected now and in the future if these legal challenges are not well addressed. MasterCard's global credit card issuer market share is only 25.6%, compared to Visa's 50.0%. In order to recoup a portion of the market share, MasterCard should increase its market share by forming partnerships and strategic alliances and increasing its global footprint through acquisitions. The firm's debt-to-asset ratio is 80 percent, which is a significant amount. This issue may not have any effect at this time, but in the future, when the company wants capital to fund an acquisition or merger, it may face borrowing restrictions. The firm's ambition to increase the value of its debt will generate bankruptcy concerns and make it difficult to service its debt obligations.

VII. Implementable Strategic Alternatives

MasterCard Inc. can utilize a growth strategy for its offered services to suit consumers' different needs and mitigate product risk. The companies should expand their value-added services, such as data analytics and cyber security because they will allow MasterCard Inc. to gain market competitiveness. The data analytics will allow the company to produce insights and analytics and provide banks with a dashboard for seeing aggregate card portfolio comparisons. MasterCard will be able to generate value through cyber and intelligence solutions, insight and analytics, test and learn loyalty, and payment gateway solutions for e-commerce firms.

The plan will allow MasterCard to improve top-line performance by bolstering revenue growth and gaining a larger market share in value-added services, a market that competitors may not have explored (Mulheron & Edlin, 2018). MasterCard should implement a strategy to expand its market and revenue base outside the United States. Besides the United States, no country earned more than 10 percent of total revenue, indicating that the company's strategy must shift from focusing on local revenue generation to focusing on the worldwide market to boost the revenue getting outside the North American market segment.

Focusing on these countries requires MasterCard to form partnerships with digital wallet players to facilitate digital wallet transactions and facilitate cyber and intelligence solutions that assist the company in creating alternative revenue streams not only from the United States but also from other countries (Mulheron & Edlin, 2018). The plan will enhance the number of revenue streams and ensure that the company is not unduly dependent on the United States, as any economic changes in the United States could substantially impact the company's bottom line. Diversification focusing on other worldwide markets for revenue development will generate alternate and sustainable revenue sources.

VIII. Criteria and Evaluation of Alternatives by Criteria

The market share growth since the introduction of each strategic option can be used to evaluate the two strategic alternatives. In 2017, MasterCard held a market share of 25.4 percent among global card issuers, according to the case excerpt. However, MasterCard's internal records could be utilized to determine the company's current market share in terms of global payment, particularly for value-added services. For instance, the success of expanding product services and focusing on markets outside the United States will be measured by the increase in market share relative to the existing rival offering comparable services and the overall company presence across all global payment systems.

The Net present value will be a helpful metric for comparing the performance of each alternative method. For instance, the firm's needed rate of return (RRR) can be calculated using the dividend discount model (DDM) and the capital asset pricing model (CAPM) (CAPM). The sales reported throughout the period will be used to calculate the Net present value by discounting the operating cash flows and deducting the initial cost of capital. Assuming revenue growth of 10%, a cost of capital of 10.66%, and all other parameters remaining constant, the expansion of product services will result in a positive value.

Positive NPV indicates that the plan is profitable and that the company should go ahead and implement the strategy. Similarly, a growth rate of 10% for the focus strategy on the new market, especially in developing countries, will result in a positive net present value. Each measure will have a positive NPV, but each strategy will face it unique issues which is not factored in this analysis. The value generated from each strategy will indicate whether it is profitable to invest in one of the strategies. The effects of various stakeholders will be determined through predicted dividend payouts, job and promotion prospects, and the means through which the strategic alternative would promote environmental sustainability. The NPV suggests that the company will achieve profit growth, and shareholders will therefore be pleased with the company's performance.

The impact of the two strategic options will have a beneficial effect on the stakeholders' perceptions of the firm's future. MasterCard Inc. employees' prospects are secure, and they will have opportunities for career advancement, as the company's sales performance shows a sustainable revenue stream (Stone, & Fatima, 2020). Other stakeholders, such as communities, are sure of employment prospects and sustainable social support. The firm's market dominance is stabilized by an increase in MasterCard's market share, granting the firm market power to influence prices and fees in the market. MasterCard is unable to affect market prices and fees due to its lack of global market presence and market share since the shifting cost is low.

VIX. Recommendation and its Implementation

MasterCard Inc. has the chance to accomplish its expansion strategy by leveraging its financial strength, skilled and talented personnel, and innovative spirit. Increasing revenue streams is the objective of the strategies linked with this strategy. The profit margin is a key performance indicator (KPI). The marketing, human resources, and finance manager will be involved in developing the budget and strategies required to increase the income stream and enhance revenue. The functional activities required to support this approach include improving marketing and employee training to line with the competencies required to promote customer-focused services and innovation throughout the organization.

There is a requirement for effective communication plans, which will be required for updating stakeholders, such as executives and shareholders, who are eager to know more about the company's performance. Three to five years will be spent monitoring the strategy. Financial resources, artificial intelligence (AI) tools, an enterprise resource planning (ERP) system, and a customer relationship management (CRM) system would be required resources in implementing this strategy.

X. Limitations and Critique of Recommendation

If the strategy is not implemented effectively, it could negatively impact the organization's cost management. Inadequate alignment with the company's culture and limited time needed to execute the plans may create barriers to implementing the strategy. Plan execution will be hindered by a lack of management buy-in due to the cost of the strategy and by ineffective, unrealistic strategies. Despite MasterCard's promotion of the strategy, there is a high probability that the company will continue to face competition from new rivals, as well as legal regulation for specific countries' payment measures and taxation, which will have an impact on the anticipated revenue after strategy implementation. The organization might eliminate a portion of this burden by selecting employees based on market needs and involving employees and management in strategy formulation to secure their support in the change implementation. Establishing a risk management plan that identifies the risks and risk mitigation strategies crucial in hedging against unanticipated risks could prevent MasterCard from incurring losses or effectively managing risk.

Exhibit 1: External Analysis

• Growing e-commerce businesses provide the opportunity for global payment players to improve growth.

• Consistent growth in e-commerce platforms encourages firms to engage in partnerships and strategic alliances.

• Success Factors include human capital, entering to partnership and mutually beneficial arrangement to expand the network so as to capitalize on e-commerce growth.

• Consumer shift in behavior

• Online purchase is growing, providing a new revenue stream for global payment firms.

• Customer trust in the online transaction has improved over time

• Key success factors: delivering services to customer as requested and creating innovation lab to introduce services that meets the changing needs of its customer base.

• Competitive threat

• Increase prices pressures, low switching cost, entry barriers, and substitute threats

• Players include Visa, Financial Institutions, Digital wallet

• Key success factors: Entering into partnerships with digital wallet firms, acquisition of startup digital wallet firm and strategic alliances.

Exhibit 2: Internal (VRIO) Analysis

MasterCard Inc. will be able to capitalize on the growling market as more people attitudes toward shopping online or using a digital platform to transact. MasterCard prides itself on having talent, a distinctive workforce, inimitable intellectual rights and innovation, and high financial power.

Exhibit 3: Financial Analysis: Ratio Analysis

MasterCard Inc. has positive current ratios meaning the firm can repay current dues. The firm has higher debt which is 80 percent of the total assets, and the equity to debts is higher, whereby the debt is approximately four times the equity owned. The efficiency in converting credit sales is high even though, according to the computation, the firm seems to have declined credit collections.

Exhibit 4: Current Strategies and their Implementation

Business Strategy: Increase sales Revenue

• Diversify product line, so that company core revenue growth is stifled

• Market focus on markets outside North American

Functional Strategy: Investing in Human Capital

• Recruiting talent with technological savvy with experience

• The talented workforces have the technological know-how to assist the company meets its immediate objectives.

Corporate Strategies: Diversification of new products into new markets and locations

• The company meets the diverse need of customers, retailers, and the government while expanding its geographical reach.

• MasterCard will support this plan by enhancing new network capabilities

• Strategic alliances with local government

Key Issue(s) Addressed by this Alternative

• Increased Revenue stream from new markets

Name of the Alternative or Strategic Goal Identifier: Expand payment

• Concentrating on its core network to enable payment for customers, businesses, government, and others

• Diversify product line, so that company core revenue growth is stifled

• Market focus on markets outside North American

Functional Strategy: Investing in Human Capital

• Recruiting talent with technological savvy with experience

• The talented workforces have the technological know-how to assist the company meets its immediate objectives.

Corporate Strategies: Diversification of new products into new markets and locations

• The company meets the diverse need of customers, retailers, and the government while expanding its geographical reach.

• MasterCard will support this plan by enhancing new network capabilities

• Strategic alliances with local government

Key Issue(s) Addressed by this Alternative

• Increased Revenue stream from new markets

FEASIBILITY JUSTIFICATION FOR THIS STRATEGIC ALTERNATIVE

Environmental Opportunity: E-commerce groups more opportunity for strategic alliance and partnership

Environmental Threats, Risks: Competitive threat causing prices pressures

Present Corporate Attributes relevant and sufficient: Financial muscles, diverse product portfolio which is values and not easy to acquire.

Insufficient Corporate Attributes: Increases legal claims and related expenses eat portion of the income and interfere with firm brand reputation.

Exhibits 5: Strategic Alternative Descriptions

Strategy alternative

1. Growth strategy for its offered services

• Suit consumers' different needs and mitigate product risk.

• Value-added services, such as data analytics and cyber security because they will allow MasterCard Inc to gain market competitiveness.

• The data analytics will allow the company to produce insights and analytics and provide banks with a dashboard for seeing aggregate card portfolio comparisons.

• Generate value through cyber and intelligence solutions, insight and analytics, test and learn loyalty and payment gateway solutions for e-commerce firms.

• Top-line performance by bolstering revenue growth and gaining a larger market share in value-added services,

• Expand the services to the market not yet explored by competitor may not have explored (Mulheron & Edlin, 2018). MasterCard should implement a strategy to expand its market and revenue base outside the United States. Besides the United States, no country earned more than 10 percent of total revenue, indicating that the company's strategy must shift from focusing on local revenue generation to focusing on the worldwide market to boost the revenue getting outside the North American market segment.

Exhibits 6: Strategic Alternative Descriptions

1. Focusing Strategy

• MasterCard to form partnerships with digital wallet players to facilitate digital wallet transactions and

• Facilitate cyber and intelligence solutions that assist the company in creating alternative revenue streams not only from the United States but also from other countries

• The plan will enhance the number of revenue streams and

• Ensure that the company is not unduly dependent on the United States

• Diversification focusing on other worldwide markets for revenue development will generate alternate and sustainable revenue sources.

Exhibit 7: Assumptions and Justifications

The assumption of the projects is that

• Growth rate for the forecasted sales from 2021 to 2026 will be 10%

• The growth rate for expenses, taxes, interest, exchange, operating income and net income will not change.

• The percentage will be determine through vertical analysis to determine value of each item in the net revenue

• Vertical analysis will be conducted on 2021 data and the revenue is forecasted to future data

• The cost of capital is 10.46 as per the Guru focus computation

Justification

• Each project may contribute differently to the company's total revenue growth and will encounter unique obstacles not accounted for in the above assumption.

• As a result, there is a possibility that one plan could encounter obstacles connected with government regulation and competitive threat in a new market, which may result in less revenue than anticipated.

• Both strategies are long-term, as the company seeks new opportunities to capitalize on new markets, expand revenue streams, and improve market share.

• Visa now dominates the market, but this must change if the plan happens to be successful.

Exhibit 8: Strategic Alternative NPV: Expanding Product Services

The NPV reported on this strategy was 24,820 indicating the project will be successful and profitable. However, the project may contribute differently to the company's total revenue growth and will encounter unique obstacles not accounted for in the above assumption.

Exhibit 9: Strategic Alternative NPV: Focus Strategy

The projects on focus strategy will generate a NPV of 15,820 since cost needed to execute the project is higher. There is need to expand marketing and research to understand the new market and promote consistent ads to create customer awareness about the product.

Exhibit 10: Evaluation of Alternatives by Criteria

The focus strategy on new markets is more profitable since it has higher positive NPV. MasterCard should prioritize more on exploring and exploiting then untapped market in developing nations and countries with increase start-up especially on e-commerce.

Exhibit 11: Implementation Schedule / Action Plan

Strategic Objective 1: Expand payment services

• Increase revenue Stream

• Key performance Measure: Net Profit

• Actions: Developing revenue target, marketing strategy, communication channel, training staffs to be in line with internal operational efficiency

• Allocate Resources: HR, Finance Manager, Marketing and Sales personnel

• Timeline: Five year period

Strategic Objective 2: Focus strategy in new Market in the developing countries

• Increase Revenue streams

• KPI: Net profit, Revenue growth rate

• Action: Developing revenue target, marketing strategy, communication and team interaction, and training staff.

• Allocate Resources: HR, Finance Manager, Marketing and Sales personnel

• Timeline: Five year period

The two strategy will be implemented as project an each project will be allocated a projects managers and team of staffs that will be responsible for developing plans, executing the plans and evaluating the plans to gauge whether the sale expectation are met. Each plan has Time Horizon of five year period.

References

Andriotis, A. (2018). Shoppers Love Rewards Credit Cards. Retailers Hate Them. WSJ. com.

Furr, N., & Shipilov, A. (2018). Building the right ecosystem for innovation. MIT Sloan Management Review, 59(4), 59–64.

Guru Focus.(n.d) Mastercard (NYSE:MA) WACC % :10.46% (As of Today)https://www.gurufocus.com/term/wacc/MA/WACC-Percentage/MA

Haines, A. (2020). This week in tax: Mastercard’s India case, tax treaties, and trade. International Tax Review.

MasterCard Inc. SEC Filling. Retrieved from https://investor.mastercard.com/financials-and-sec-filings/sec-filings/default.aspx

Mulheron, R., & Edlin, D. E. (2018). The Mere Mirage of a Class Action? A Challenge to Merricks v Mastercard Inc. CIVIL JUSTICE QUARTERLY, 37(2), 216-256.

Stone, R & Fatima, A.(2020, Feb 5). Visa and Mastercard bet big on different growth strategies. S&P Global Market Intelligence. Retrieved from https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/visa-mastercard-bet-big-on-different-growth-strategies-56797573