Mastercard MA Gets into Online Retail Business

   
Mastercard MA Gets into Online Retail Business

It’s a shopaholic’s dream and a privacy advocate’s nightmare – a credit card that knows what you’ve been buying and can make recommendations on what to splurge on next.

Through a new partnership with an Internet company that specializes in personalized shopping, MasterCard (MA) just rolled out a Web shopping mall call MasterCard Marketplace on Monday. The gimmick is that it can predict what MA cardholders are likely to purchase and make suggestions. Now that consumer spending is actually above it’s 2008 peak (really!), now is the perfect time for such a program.

It’s worth noting that MasterCard’s competitors are also trying to expand their presence in online commerce. For instance, American Express (AXP) has a site called “Daily Wish” that offers discounts on targeted products, and Visa (V) plans to roll out a service called “RightCliq” which will offer consumers comparisons when they are shopping online. Despite being one of the Dow’s top performers in 2009, American Express is struggling after a poor Q4 earnings report; and Visa is still trying to prove that it has staying power after initial enthusiasm over its IPO faded last summer.

Neither moves from V or AXP have quite the splash that MasterCard Marketplace does, so MA is entering uncharted territory. But the real question is why MasterCard getting in on the online marketing and retail biz at all?

The answer is tricky. While it’s true that MA is stacking up credit card fees at a rapid rate, it’s also true that MasterCard’s fees are irritating both consumers, retailers and political watchdogs alike.

You see, credit card companies like MasterCard, Visa and American Express make a killing on merchant fees. The Retail Industry Leaders Association says interchange fees from card issuers like have tripled in the United States since 2001 and totaled more than $48 billion in 2008. That’s despite advances in technology that have reduced other transactional costs. In fact, the RILA says most retailers actually have a lower processing cost for paper checks than credit and debit cards!

As a result, there is growing backlash among merchants over the impact of these fees. Retailers feel like they are getting nothing in return but have no choice but to suffer through the cost as more and more consumers pay with credit and debit cards. The Government Accountability Office, the watchdog arm of Congress, even went as far as to call out the escalating cost of interchange fees late last year as a danger to both businesses and consumers.

Still wondering what all this has to do with an online shopping mall that predicts your spending habits? Then consider this: If MasterCard can act like it is actually providing a service to businesses and shoppers instead of just greedily hoarding fees for nothing in return, it’s much easier for MA executives to justify interchange rates.

Some shoppers will undoubtedly appreciate the suggestions provided by MasterCard Marketplace. Retail sales are on the rise at long last, so there may be pent up demand to go on a spending spree. The merchants who get promoted via the online shopping mall are sure to like the revenue.

So if the site is well-received, it could prove an effective way to prove that MA is out to do more than just hoard interchange fees. MasterCard describes its approach as a potential game changer, luring consumers to a shopping site run by a payment network rather than a retailer is something that has never been done before and could potentially open up a huge realm of profit potential for MA.

However, MasterCard runs a real risk of creating a new problem while looking to mitigate an old one: The partnership is irking privacy advocates left and right. The marketing partner with MA on this venture, Next Jump, is drawing on buying patterns across thousands of retailers and millions of customers since a bigger sample size allows better analysis of buying trends. Knowing that data is out there – who is spending how much at which stores — is troubling to some.

Still, it’s hard to argue with results if you’re an owner of MA stock. Charlie Kim, the Next Jump’s founder, says its strategy converts one in every 11 browsers into buyers — far above the online retail industry standard.

MasterCard Marketplace is very ambitious. That means it has big potential — on both sides of the equation. If Next Jump’s technology works and is well received, MasterCard could see a period of strong growth. If it flops and privacy advocates continue to ramp up the rhetoric, MA could find itself with a bigger problem than backlash over merchant fees. 

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Article printed from InvestorPlace Media, http://investorplace.com/2010/04/mastercard-marketplace-ma-stock-visa-v-american-express-axp/.

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