MasterCard does not plan to mimic Visa's recent move to develop a private-label processing network for banks like JPMorgan Chase, but CEO Ajay Banga acknowledges that if more institutions pursue the strategy, the card network will have to consider it.
MasterCard has the technical ability to customize its processing platform for individual bank clients, but during a call with analysts to discuss first quarter earnings on Wednesday, Banga said he hasn't concluded whether the move makes sense for the Purchase, N.Y.-based company.
"We're going to see how this thing goes in the marketplace…A lot depends on how issuers and acquirers respond, as well as how merchants respond," Banga says. "I don't believe I have the need or the pressure to do anything differently other than look at it strategically."
The 10-year deal between Visa and Chase will furnish the bank with its own processing network and end-to-end payments platform. It will enable JPMorgan Chase to build direct relationships with merchants as well as leverage its recently acquired merchant-offer service Bloomspot to provide consumers with targeted offers and discounts at the point of sale. As part of the agreement, Chase will shift additional credit and debit card volume to Visa, driving more transactions on the Visa network.
The deal is a mixed bag for Visa. It locks in a substantial card issuing and merchant acquiring bank into a long-term deal and drives more business to its network. But allowing Chase to negotiate fees directly with merchants could diminish Visa's brand and value proposition and has the potential to give Chase an upper hand in merchant partnerships that could aggravate Visa's other bank clients—factors that Banga said he'd have to consider before leading MasterCard down the same path.
"If clients talk to me, I will think about it. I don't know what I would conclude because it would depend on what it does for our brand and our company, as well as for that client and for the other clients whom I have relationships with," Banga says. "It is going to be a very complex Rubik's Cube to think our way through."
In what may have been a subtle jab at his counterpart, Visa CEO Charlie Scharf told analysts later that day the initiative is meant to make the Foster City, Calif.-based card network proactive in how it responds to banks' needs.
"We're not the type of organization that waits for our clients to call us. We talk with clients literally day in and day out," Scharf said during Visa's earnings call on Wednesday. "There are conversations that we have been doing with clients of all sizes. As I said during the [first quarter earnings] call, we want to more flexible."
MasterCard has previously shown a willingness to take a backseat to its bank partners, most recently with its digital wallet strategy. Its MasterPass wallet is cobranded, but emphasizes the issuing bank's brand ahead of MasterCard's, as opposed to the V.me wallet, which partners with banks, but is presented to consumers under the Visa brand.
And a potential MasterCard private-label network wouldn't exactly mirror Visa's arrangement. "I don't know exactly what is inside the Visa/Chase deal," Banga says. "I may not do exactly like them. If I do something, it may be done differently."
Still, as in the case with Visa, the potential exists for banks' private-label networks to diminish the core strengths of the MasterCard network in the eyes of merchants. But MasterCard may take that chance as it seeks to diversify its offerings beyond traditional clearing, authorization, and settlement services.
"What we have in our network is the asset of connecting billions of consumers with millions of merchants with tens of thousands of banks in 200 countries with all the local legal regs built in. That is a great asset," Banga says.
"What we need to do is to be able to leverage that asset in many ways…embedding ourselves better with merchants, with issuers, with acquirers, with governments, with consumers for these value-added services that you can bring by using what you do well, which is the network, and the data warehouse, and the processing," he says.