It's also possible that in this case I was wrong. While the two stocks have marked each other closely since Visa did its IPO in 2008, it was MasterCard that came up with the idea of going public first, in 2006. If you got into that deal at $39/share, the IPO price, you are a very happy camper -- the shares are up over 1,000% and now trade at $523. I think the difference between MasterCard and Visa these days comes down to offense vs. defense. The battlefield on which they play is data. The way they see data makes the difference. Visa focuses on the business of processing transactions. They define the industry's security procedures, which they take very seriously and enforce rigorously. MasterCard is focused more on what transaction data means, and how it can be used to create more transactions. It quietly launched an online mall called MasterCard Marketplace in 2010 based on NextJump's reward program technology. By connecting member banks' reward programs to the marketplace, MasterCard builds shopper dossiers on customers. The more you use it to get free stuff, the more it learns about for what you're willing to pay.
Free stuff is the new way to build profit into credit cards. With cards taking a discount of 2%-5% to process a transaction for merchants, plus interest and fees from the customer, there's plenty of money to create a reward program that makes sure that money keeps flowing in. Credit cards have replaced the old Green Stamps from when I was a kid, with data making them much more valuable to merchants than before.
Data is the key point here. Not just payment data but preference data, and data that can increase loyalty to a bank or a merchant. It's a lot cheaper for a store to turn an occasional shopper into a regular with escalating discounts than it is for them to advertise for new customers. Whatever MasterCard is doing right, it's been discovered by the smart money. The stock sports an earnings multiple near 24 -- Google ( GOOG) territory -- drawing one dollar in three to the bottom line. It is, quite literally, a license to make money. The question occurs, of course, that in this world of ever-changing money, with Google launching a wallet and start-ups like Square, can MasterCard keep its mojo going? They say follow the money, but here in the 21st century the better idea is to follow the data. At the time of publication the author had positions in KO and GOOG. Follow @DanaBlankenhorn This article was written by an independent contributor, separate from TheStreet's regular news coverage.