Mastercard and Visa: Embracing Frenemies and Digital Transformation for a Future-Proof Strategy

In a world characterized by constant disruption, the finance industry is no exception. The year 2020 witnessed a surge in fintech innovation, propelled further by the COVID-19 pandemic. As people increasingly turned to online shopping and managing their finances from home, electronic payments gained substantial momentum, according to Forbes. Among the victors of this digital shift were Square and PayPal, but traditional incumbents like Mastercard and Visa have also proven their resilience. Both companies have recently announced their earnings, revealing their adaptability in an ever-changing landscape.

At the IMD’s Center For Future Readiness, a comprehensive ranking of financial institutions’ preparedness for the future is underway for 2021. This ranking relies solely on hard market data, eschewing softer inputs like polls or surveys. The evaluation encompasses various factors, such as a company’s current business health, workforce diversity, governance structure, competitive investments, and the pace of new product launches.

One burning question is how Mastercard and Visa managed to thrive in an era where traditional plastic cards appeared obsolete, given the rise of Apple Pay and Google Wallet. The answer lies in the concept of «frenemies.» Instead of trying to outpace fintech startups and tech giants, Mastercard and Visa chose to collaborate with their disruptors, turning potential adversaries into allies.

The key strategy involves working hand-in-hand with industry players like PayPal, Apple, and Google to create fresh market opportunities. This collaboration is facilitated by extensive investment in a broad range of application programming interfaces (APIs), ensuring both security and accessibility. Consequently, tech giants like Apple can find valuable partnerships with Mastercard and Visa.

However, a deeper analysis was conducted by Professor Howard Yu and his research team. They analyzed annual reports spanning the last decade and transcripts of investor earning calls, processing this data with algorithms. Their aim was to understand how these companies discuss themselves and their approach to digital technologies in public.

This analysis goes beyond mere talk; it seeks to determine the depth of commitment to digital transformation. Merely mentioning digital technology does not guarantee meaningful innovation. A company that disperses investments without focus makes minimal progress in numerous directions. The key is strategic allocation and rigorous monitoring of resources, exploiting successful initiatives, and concentrating on validated areas for development.

The results of this study reveal two critical takeaways. First, to thrive in the financial sector, a digital presence is imperative. Traditional banks are evolving into tech companies that facilitate lending and payment processing. Second, future preparedness hinges on striking a balance between exploration and exploitation. While staying open to innovation is essential initially, long-term success requires dedicated commitment and resource allocation to scale validated successes.

To navigate an ever-evolving financial landscape, organizations must align themselves with a unified vision of the future. Mastercard and Visa have demonstrated their adaptability through strategic partnerships and a firm commitment to digital transformation, showing the way for others in the industry.