Case Summary
Visa and MasterCard are the two largest providers in the marketfor general purpose credit card network products and services.Together, Visa and MasterCard account for 75% of the dollar volumeof transactions, and account for 86% of the number of generalpurpose cards issued. American Express, Discover/Novus, and DinersClub are the significant competitors in the general purpose cardmarket. Both Visa and MasterCard are joint ventures (associations)that are owned and operated by the member banks that issue cardsand provide card acceptance services. The member banks have aninterest in both Visa and MasterCard (known as duality) and haverepresentatives serving on the board of directors or importantcommittees of both Visa and MasterCard.
Since the member banks of Visa and MasterCard have a significantinterest in both Visa and MasterCard, they have little incentive ordesire to compete directly against one another. The member bankshave refused efforts by MasterCard management to develop its brandthrough marketing campaigns. The banks felt that this action wouldhurt the Visa brand, which the banks have a stake in. They havealso not supported new product development, unless the newdevelopment was available to both Visa and MasterCard. In additionto avoiding competition between brands, the member banks haveprohibited its banks from issuing competing credit cards, such asAmerican Express and Discover/Novus. They have also worked jointlyto discourage merchant acceptance of competing cards and access toATMs for cash advances.
Discussion Questions
- What is the ownership structure of Visa and MasterCard? How isthe management set up to reflect this?
- Who are the competitors for Visa and MasterCard? What are thebarriers to entry for new competition?
- How does the dual ownership of Visa and MasterCard lessencompetition between the two?
- How have Visa and MasterCard worked to restrain its competitorsfrom competing in the market?
- What evidence is there that Visa and MasterCard would competemore aggressively without duality?
