The BBW50: Why MasterCard Is on Top

Our annual look at the S&P 500’s leaders reveals the surprising strength of consumer brands and energy companies. No. 1? MasterCard

Ajay Banga has declared war on cash. As chief executive officer of MasterCard, he wants his troops to do whatever they can to persuade consumers to slap down the plastic and increase the 15 percent of global retail transactions made with credit and debit cards or other electronic means. “The war on cash was really a rallying cry for everyone to focus on the 85 percent,” Banga says.

Cards accounted for 48 percent of total U.S. consumer purchases in 2010, according to the Nilson Report, a credit-card industry newsletter. By 2015, plastic’s share could surge to 59 percent, the report shows. And the shift is happening even faster abroad, according to investment bank KBW. That will give a boost to MasterCard, which sees 64 percent of its purchase volume outside the U.S.—vs. 47 percent at archrival Visa.

MasterCard, which went public in 2006, surged 66 percent in 2011, the fourth-best performer in the Standard & Poor’s 500-stock index. Analysts expect the company to see earnings per share climb 17 percent in 2012, helping to propel it to the No. 1 spot on this year’s Bloomberg Businessweek 50 list of top-performing companies. (Visa, which started trading in 2008, wasn’t considered for the BBW50 because it has been listed for less than five years.)

Visa in 2010 handled 39 percent of U.S. credit-card purchases by volume, while MasterCard had 23 percent, Nilson estimates. MasterCard’s lag is even bigger in debit-card transactions. Visa says it processed $1.14 trillion in such purchases in the U.S. during the fiscal year ended Sept. 30, more than triple MasterCard’s $376 billion—but Banga sees that as a chance to gain market share.

New regulations bar debit-card processors from demanding exclusive agreements with merchants, which Banga says will let him sign up more retailers. The shift “opened up an opportunity for MasterCard,” Banga says. Visa is “in a completely different competitive position. I’m not protecting what I call large incumbency.”

The company has teamed up with Google to let consumers make retail payments with smartphones and is working with Intel to enhance security for online shopping. (Says Banga: “We are really a technology company.”) Those are the kinds of deals MasterCard will have to make to keep gaining on its chief competitor, says David Togut, an analyst at investment bank Evercore Partners. “Ajay Banga has really energized the company,” says Togut, who rates the stock a “hold.” “They’ve become an aggressive challenger to Visa.”

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