I loved word problems in math class as a kid. Most people hated them, but today I am going to give you an easy one. Imagine you have a lemonade stand that offers lemonade for $0.50 a cup. Right around the corner, another stand opens and sells lemonade for $0.75 a cup. But they use fancy cups. After some research you learn two things. First, many of your customers are going to this new stand and paying more money. Second, you learn that the cups cost $0.05 each. What do you do?
The solution here is obvious. Buy some fancy cups of your own and increase your price to $0.75. This not only takes away the competitive advantage of the other stand, it also increases your profits at the same time.
Mastercard and their issuing banks now find themselves in a very similar situation. For years they have been providing cards with lower interchange and lower rewards for consumers. American Express has been charging higher costs to merchants with richer rewards for consumers. In a recent post, (http://www.ccsalespro.com/big-news-amex-won-supreme-court/) I talked about the Supreme Court Case which gave American Express a victory by validating their anti-steering laws. These laws keep merchants from steering consumers to lower cost cards such as Mastercard.
What is Mastercard going to do? Buy a fancier cup and increase their rate, of course. In this case, that means introducing cards with higher rewards and higher costs to merchants. In this article by Forbes (https://www.forbes.com/sites/kenkam/2018/07/20/how-to-play-mastercard-and-alphabet-after-recent-bad-news/#4f6a9c833be4 ) we see that institutional investors feel secure with Mastercard after this competitive loss to American Express. This is because they know Mastercard and Visa can easily create competing cards that have a similar model to American Express. The recent SCOTUS ruling gives Mastercard the perfect excuse to increase their costs to merchants, add incentives for consumers, and reap more profits in the process.
As an ISO or Merchant Level Sales professional, there are two things I would do as a result of this shift in the competitive landscape.
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