Here's a story on Bank of America's announcement that it may elbow its way into the credit card business. (Thanks to Chad Rolston for the heads up.)
The MasterCard IPO structure has several features that seem puzzling. I'd been focusing my attention on one end of the network and how MasterCard is getting squeezed by merchants (esp WalMart) and regulators. The announcement by B of A suggests that MasterCard and Visa will face competition from the other end of the network -- first B of A, tomorrow Citi? What happens if, say, Citi and Walmart team up to form a competing payment system network? What will happen to interchange fees? The next decade will be very interesting for payment systems.
The most puzzling feature in the MasterCard deal is the charitable foundation -- why would MC give away $600 million in value? What makes it especially interesting is that the foundation can't sell its stock for a long time (none for 4 years, and only in small amounts for 21 years). It can't be *just* an embedded takeover defense, as other features of the deal would make a takeover difficult. The foundation instead will provide some stability to the brand and the market -- not only does the structure of the deal prevent B of A from taking over MasterCard, it makes it impossible for any of the member banks to use voting power to influence MasterCard to benefit themselves to the detriment of other member banks. Pretty clever.
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1. Posted by 2006prof on April 28, 2006 @ 16:12 | Permalink
This is particularly interesting when one remembers that, long ago, BofA had a credit card brand--BankAmericard--which it lost control of as it morphed into Visa.
2. Posted by Robert Schwartz on April 29, 2006 @ 19:59 | Permalink
BofA invented the modern bank credit card with the BankAmericard. The first bank other than BofA to offer it was what eventually became Bank One (which merged with JPMorgan Chase a couple of years ago), in the early 1970s. I had one when I was in law school in Columbus 1972-75.
BofA changed the name to Visa and set up the modern Visa organization because other banks were reluctant to market the card with Bof A's mane on it. Master Card was organized as a competitive response by several NYC banks in the early 70s.
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