Excluding China, where UnionPay has a monopoly, Mastercard is the second largest payment card processor in the world with a 27% market share as of 2017.1 As a result of its virtually unrivaled global network of merchant, consumer, banking, and corporate relationships, we believe Mastercard is in a great position to benefit both from global GDP growth and from the secular trend away from cash, which still remains the method of payment in 77% of the world’s transactions.2 Moreover, because network value rises exponentially as new participants join a network, we believe Mastercard is both incredibly difficult to disrupt and highly likely to maintain or even increase its pricing power over time. Remarkably, despite the long runway for growth opportunities, it is likely that very little capital will need to be reinvested to achieve this growth, increasing the earnings multiple investors should be willing to pay for the business.
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1 See https://www.paymentscardsandmobile.com/unionpay-stays-on-top-as-the-worlds-largest-card-scheme/.
2 See page 6 of https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Global%20payments%20Expansive%20growth%20targeted%20opportunities/Global-payments-map-2018.ashx.