Valdas S. London based head of technology during the day, writer at night. Valdas writes about finance, economy, and technology.

2020-11-16 06:18

For Mastercard (NYSE: MA),2020 started as yet another year only for it to change completely a couple of months later. The global Covid-19 pandemic hit the company hard: subdued economic activities, especially in the hospitality and travel sectors, made the trading environment much harsher.

Taking into consideration the environment the company had to operate in, especially since March, the financials look relatively optimistic. With the positive news about Covid-19 vaccination developments and a more favourable economic outlook for 2021, can the payment technology company be one of the early beneficiaries of an improving global economy?

The 3Q, 2020 showed 15% YOY reduction in revenues and 5% lower operating expenses. While the results aren’t exactly worth a celebration, they also are nowhere near as bad, considering the impact Covid-19 had on the global economy.

Despite lower revenues, the company managed to increase the overall number of its card ownerships by 118 million (5%). There was also 5% growth in switched transaction volume, which resulted in almost a billion of additional transactions being executed.

Growth in transaction volume and card ownership did not help to match the performance of its main competitor- Visa, which only saw a minor reduction in revenues.

On a more positive side, Mastercard is engaged with several FinTech startups addressing ongoing issues in the sector, ranging from access to payment facilities to commerce automation. Such cooperation with startups shows that the company isn’t oblivious to the constant changes in the industry and can deploy capital towards emerging technologies.

Mastercard is the canary to the global economy. The growth in consumer confidence almost immediately translates in higher transaction volumes. If the mass vaccination programs prove to be as successful as initial trials have shown, Mastercard will be among the first companies to benefit. There’s a massive bottleneck of holidaymakers that have chosen not to travel abroad in 2020 due to safety concerns. The number of people who can’t wait to go overseas grows daily, and we are likely to see a powerful performance in cross-border payment volumes at the end of Q1 2021 or the beginning of Q2 2021.

It is yet to be seen how the company will address the performance gap between itself and Visa. Both companies operate in the same environment and have very similar business models. It is likely that the company dominates the demographics that were affected by the pandemic much harder than those of Visa’s.

Mastercard is in an excellent position to benefit from the economic recovery, should vaccination program be successful in 2021. It also keeps a finger on the market pulse by cooperating with innovative startups. The more significant drop in revenue, compared to Visa, is the result of the company’s business size from private customers vs business.

The company could use 2020 as an opportunity to target the business community that will still be recovering in 2021 and may be more likely to jump the ship to Mastercard’s side. It will also be more likely to show the earliest signs of recovery, due to non-business cross border travel picking up much faster than business-related journeys.