Three Reasons Why MasterCard Acquired This Canadian Security Company

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Mastercard

MasterCard (NYSE: MA) announced the acquisition of NuData Security last month. The Canada-based company specializes in passive biometrics, a technology that can be leveraged in making electronic payments more secure. Using this technology, payment companies can avoid having to build elaborate authentication techniques into the payment process. Instead, they can rely on a highly accurate methodology that uses a wide range of measures to identify the validity of a transaction. MasterCard is expected to include these technologies into their own payment process. The amount for which the acquisition was completed is yet to be disclosed, so it is difficult to evaluate the financial merits of the deal, but the operational merits of the deal are clear. This acquisition will help MasterCard in the following three ways:

  1. In recent years, MasterCard’s revenue growth has been accelerated by the growth in revenue of what the company lists on its statements of income as “Other Services.” These include, but are not limited to, identity and theft protection services, reward programs for customers, and other kinds of analytics. Growing this revenue stream involves a huge amount of investment on the part of this company, and it is primarily this kind of investment that gives the company an advantage over competitors. The addition of NuData Security will help increase this revenue stream even more.
  2. According to a U.S. Payments survey conducted last year, 74% customers would prefer to use a service that was more secure than one that offered more benefits. The addition of NuData’s technology will help make MasterCard’s services more secure and will also improve the user experience, eliminating the hassle of having to remember difficult passwords and answers to security questions, multi-factor authentication steps, and giving customers added peace of mind about having their accounts hacked or identities breached.
  3. Investing in acquisitions like this is a good way of diverting the money that the company has been saving by reducing its spend on sales and marketing. Over the 2011-2015 period, MasterCard’s spending on sales and marketing has reduced from 12% to 8.6%. However, its expenditure on rebates and incentives has grown from 31.9% to 41.6%. The company can reduce this spending and instead use this money to make its services more secure, which is more likely to make customers stick to its services.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for MasterCard
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