Exclusive: ‘The plastic billionaire and Old Master cash’ – Ron Delnevo, Cash and Card Consultants in “The Fintech Magazine”
Ron Delnevo, Chairman of Cash and Card Consultants, ponders whether his fortunes would have been better served investing in a priceless work of cards, not art!
I have always loved art and, in particular, paintings. My love is purely for originals. I like to own something unique. My budget doesn’t extend to buying old masters but, over the years, I have acquired a number of canvasses.
Now, I must make clear that I have bought only works that I have liked. My first priority is getting pleasure from having them hanging on a wall that I also own. However, in buying more expensive items, I have also had one eye on the potential for them to be good investments. Hope springs eternal, as they say!
It just so happens that, in late 2005, I bought what I viewed as a lovely landscape, painted by an English artist named David Smith. I had wanted one of his creations for quite a while and finally took the plunge by investing around $10,000 in a canvas depicting a particularly idyllic stretch of the River Chelmer in Essex.
So, there I was, in 2006, proud owner of a $10,000 work of art – and an investment. How does my investment now compare with others I could have made at around the same time?
Well, since I work in the payments industry, I thought of that industry first for a comparison. Happily, there was an easy option for the purposes of comparison, namely Mastercard, which went public through an Initial Public Offering (IPO) in May 2006.
Taking account of subsequent share-splits, my $10,000, invested in Mastercard in 2006, would have left me the happy owner of 2,600 Mastercard shares today. As I write, each Mastercard share is quoted on the stock market at $331, leaving my 2,600 shares worth a very cool $861,000. Plus I would, over the same period, have earned more than $10,000 in dividends. So, one way to look at it is that the dividends alone would have given me a 100 per cent return on my investment over the last 14 years.
Of course, I alighted on an exceptional stock for this comparison. It happens that Mastercard has even outperformed Apple in terms of returns for investors. Needless to say, while the revelation of Mastercard’s stock market performance answered the question ‘how much?’, it also begged the question, ‘why?’.
One reason is rather obvious. Though Mastercard did go through an IPO, the company was no new and naïve kid on the block. In fact, the history of Mastercard dates back to 1966, the year England won the football World Cup – yes, that long ago! – and 12 months before the world’s first ATM was installed in June 1967.
Of course, corporate names sometimes change over the years, so what started as the Interbank Card Association didn’t adopt the name Mastercard until 1979, the year the UK elected its first female Prime Minister. I am sure that, in Mrs Thatcher’s famous handbag, there would have been at least one Mastercard, adding a little weight when she used her accessory to deal with errant cabinet ministers.
Mastercard used its new name to good effect, becoming the first payment card to be issued in the People’s Republic of China, long before the planet’s first debit card was issued in 1987 – and prior to the awful stock market crash of 1988,
However, the next 20 years were not ones in which Mastercard hit the headlines. True, the now famous ‘priceless’ advertising theme first started appearing in 1997, but, apart from that, the only significant piece of corporate deal-making that really impacted Mastercard’s long-term prospects was its alliance, then integration, with Europay International in 2002.
In 2005, the year my UK ATM company Bank Machine was acquired by Cardtronics, I remember discussing with my fellow directors that the activities of Mastercard (and Visa) would be likely to have an adverse impact on cash usage over the next few years. We certainly got that one right!
Mastercard achieved warp factor growth shortly after its 2006 IPO. Between 2008 and 2012, it integrated with Europay France and acquired no fewer than four other companies: Orbiscom; DataCash; Trevica and Truaxis. But, in fairness, the most important acquisition Mastercard made in this period was its shiny and dynamic new CEO, Ajay Banga. This recruit had worked for Citigroup for many years and it didn’t take him long to make his mark at the card giant. He did so rather dramatically, just six months after his arrival, by declaring war; Mastercard’s keynote ‘War on Cash’ had begun!
More acquisitions followed at steady intervals. Over the next few years, the following companies succumbed to Mastercard’s charms: Provus; C-SAM; PinPoint; 5one; NuData Security; VocaLink; Trans-Fast (now TF Pay); Brighterion; and Nets. That’s roughly one acquisition a year since Ajay Banga arrived at the company. The CEO is now 60 years old – he certainly didn’t waste his 50s!
Buying so many companies would normally set the alarm bells ringing – some organisations acquire in this way to disguise the fact that their core business is in decline. Not in Mastercard’s case, though. It has mainly bought new platforms or, in some cases, businesses that added to its corporate skill-set.
As well as acquisitions, Mastercard has been able to form alliances with a number of major partners, including China UnionPay, which lays claim to being the world’s biggest card issuer. Mastercard clearly sees promise in China, for in February this year the company announced that it had regulatory approval to re-enter a market it first visited 30 years previously.
So, what will the future hold for that $10,000 invested in 2006? Mastercard is a brilliantly successful company, which has consistently invested in its future. A good example is the establishment of Mastercard Labs in 2010, which serves as an incubator for new ideas that can power the organisation to even greater success.
It also invests massively in marketing. In one recent quarter, spend was a cool $170million, a 26 per cent increase on the same quarter of the previous year.
Mastercard can, of course, afford to spend big – in the same quarter, its revenue was approaching $3billion.
There is absolutely no doubt in my mind that this company can build on the success of the last 15 years to achieve even greater things. After all, the ‘War on Cash’ that its CEO declared a decade ago is nowhere near being won.
Eighty per cent or so of the world’s payments are still made using cash. Every percentage point Mastercard can win away from cash is probably worth a billion or more dollars a year in extra revenue.
Perhaps luckily for cash, Ajay Banga has decided to move on from his role as CEO. He may feel it is a good time to hang up his card machine, capitalise on his share grants and have some well-earned R&R. A talented, as well as lucky, man. Most generals don’t fight a war for 10 years, see off only around 10 per cent of the enemy and retire as billionaires.
Cash, of course, has been around for 2,500 years and, though never supported by any significant marketing budgets, has survived many attacks. However, even if it is fighting a war that can never truly be won, there is little doubt that Mastercard can go on making significant territorial gains, building on the phenomenally successful strategy devised by a brilliant CEO
What will those 2,600 shares be worth in another decade? I would not be at all surprised if the $10,000 that became $810,000 increases again to $3million-plus within the next 10 years. Put another way, if you haven’t got Mastercard in your share portfolio – assuming you possess such a thing – you must be at least one apple tree short of an orchard!
Oh, I almost forgot: how has my investment in paintings been going, over the same period?
Sadly, the lovely landscape I purchased for $10,000 in 2006, although it remains as pleasing to the eye as ever, is valued at less than $3,000 today. The artist – thankfully – lives on, but he has been too prolific to make me wealthy. So, I will keep my painting and continue to admire it, hanging above my fireplace – although I have to admit I sometimes wish I was looking at a nicely framed Mastercard share certificate instead!