In the past 20 years, Visa and MasterCard have become household names as more and more of us refuse to carry cash and use credit for all our payments. Along with the advent of online retailing, where credit is often the only payment accepted, Visa and MasterCard have seen their profits grow. Yet their profits may soon decline after being forced to lower their merchant fees, where they make most of their profit, under the threat of regulation by the Harper government.
Who Needs Plastic? Source: Engadget
This is prime example of Visa and MasterCard’s failure to conduct a thorough PEST analysis on their business model. Despite having ample warning of political threats through similar situations in other countries, such as the EU, where merchant fees are kept at a low 1.5%, Visa and MasterCard continued relying on merchant fee model to make their profits. As a result, they now face loosing a big portion of the 6 billion dollars they make per year. Additionally, Visa and MasterCard also face challenges technologically, such as new payment methods such as Apple Pay, which could offer far greater convenience to consumers. With such new developments, Visa and MasterCard has develop a new business model.
In the short run, Visa and MasterCard are expected to regain some of the losses, through increasing annual fess, and reducing cardholders incentives. However, such a strategy will not be viable in the long run, with many consumers inclined to use a credit card only to gain Air Miles for cash regards and air tickets. To develop a viable strategy in the long run, Visa and MasterCard must capitalize on their strengths, such as their global network and branding, to remain relevant in an ever-changing business environment.