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CASE STUDY

CAN DSS HELP MASTERCARD MASTER THE CREDIT CARD BUSINESS
Credit (change) cards have been very big business for several decades. In 2001, over $30 trillion in payments for goods and services were charged using credit cards. The cards have made life easier for many people because they do not need to carry large amounts of cash for most purchases. Many people also use the cards as a way to borrow money because they need only pay a small percentage of the amount they owe each month, although they are usually charged very high interest rates for the unpaid balance. The interest goes to the issuing bank, making credit cards a very profitable service for them. However, the credit card industry is intensely competitive, highly fragmented, and growing at a rate of 3 to 4 per year, making those profits difficult to achieve.

Visa and MasterCard are associations of banks that issue the credit cards. They market their cards, often several different cards, and provide support for the transactions, making networks available to collect and use the data. The most popular credit card has been Visa, with 44.5 percent of the business in 2001, while MasterCard is number two with 31.6 percent. Being very much second to Visa, MasterCard is trying to overtake it. While it had been number two since the beginning, MasterCard began to emerge from “its doldrums” in 1997, according to Robert Selander, MasterCard’s CEO. It began to realize it might really be able to overtake Visa and become number one. To reach that goal, MasterCard needed to present itself so that potential user will choose a MasterCard rather than a Visa. It also had to spur the bank issuers to promote MasterCard cards rather than those of their competition. In 1998, when MasterCard had only 28.8 percent of the credit card charge volume while Visa’s was over 50 percent, MasterCard decided it needed a new computer center, partially to handle all the data as the company’s business expanded as a result of its drive to overtake Visa. It also foresaw growth as a result of its change in strategy. The company’s new strategy required a system that would be able to keep a record of every transaction of every customer for three years. The strategy included ways MasterCard and its member banks could use that data to increase their credit card business. MasterCard wanted to increase its daily volume of 30 million transactions in 1977. At the time it had three separate computer centers on four floors in the suburbs of St. Louis, Missouri, and it wanted to consolidate the computer centers while enlarging the new center so that it would be able to handle both the current volume and the planned volume as it expanded. At that time it was storing nearly 50 terabytes (50 trillion numbers and letters) of data, including the dollar amount, merchant, location, and card number. MasterCard also planned to add other data

While both Visa and MasterCard had already been warehousing so much data. Such analysis could help banks determine the types of customers that were most profitable or find ways to appeal to more potential MasterCard customers. such as ZIP codes. called the Business Performance Intelligence. MasterCard hoped it could persuade banks to use these data if they could see value (increased profit) in the process. they would be inclined to push MasterCard more often. Because call-ins cost about $3 each. MasterCard assigned 35 full-time developers to the task of identifying and creating software tools to accomplish this task. if banks could use MasterCard tools to improve their analysis of the profitability of the cards in their portfolios or gain more customers and transactions to process. said Ted Iacobuzio. director of consumer credit research for the consulting and research firm. it did decide not to include demographic data such as incomes and ages. the MasterCard company can gain a strategic advantage. MasterCard’s vice president of Internet technology services. Another bank was turning down one one transaction out of five because so many call-ins were timing out. but it also needed to make available appropriate analytic software. MasterCard needed not only to make each bank’s data available to them. Nonetheless. the largest issuer of credit cards.) One of MasterCard’s new tools. the bank would be able to eliminate thousands of unnecessary lost transactions. a bank was requiring its merchants to verify the whole process by using the telephone to call in one transaction out of 50 for approval (rather than using a telecommunications method). For example.000 a year by switching over to the one in 500 method. all in order to persuade the banks to choose MasterCard over Visa. is for operational reporting and includes a suite of 70 standard reports that banks can use to analyze their . said that “little percentages” can be very profitable to banks. P. these developers created and programmed 27 tools for the banks to use. In one case. About 28. that bank could save $300. Drawing on Business Objects Web Intelligence software in 2001. To draw these customers into using its credit card transaction data. “The credit card business lives and dies by data”. J. (These tools are not free and they are not available to merchants. The bank was able to discover that most of the customers turned down were actually creditworthy. However. TowerGroup. and if the banks can use this information from MasterCard while Visa does not have or make available such information. while most banks were requiring only one transaction in 500. in 2001. MasterCard’s goal was to give its members (the banks) direct access to their customers’ data as well as tools to analyze all of this data. Morgan Chase likewise was convinced to use MasterCard for 80 percent of the cards it issued. they were both moving toward providing reports to their member banks. MasterCard persuaded Citigroup. Joseph Caro. to push MasterCard over Visa so that 85 percent of its credit cards came from MasterCard versus only 15 percent from Visa. to protect MasterCard users. By changing its set up. Many banks issue both Visa Cards and MasterCard cards (sometimes several of each). to make the data more useful. For example.fields.000 banks and financial service companies issue MasterCard credit cards.

who used their own software and computers to analyze the data. Subscribing banks access the MasterCard business intelligence system via a secure extranet. cost MasterCard $135 million. enabling them to concentrate on their own issues and concern. Visa also introduced a Web service called Resolve Online to help banks deal with disputed payments and is working on providing banks with online analytic tools. MasterCard also works with individual banks to create their own custom reports. weekly. Visa “will have it in six months”. and is managing about 100 trillion terabytes of data for its clients. “If we can do thing faster. “If MasterCard is ahead of the game in any of this”. In May 2002. or a single country) with that of another market. Moreover. is not sitting still. Until recently. Describe the new business strategy MasterCard developed. however.com . The developers also created MarketScope. Then. Recently.000-square – foot building. despite the purchases of about $4 billion each day. But even they would have a use for MasterCard’s software as a kind of benchmark against which to measure the effectiveness of their own systems. Questions : 1. The banks can then compare the results from one market (such as a United States state or region. little percentages start moving in our direction. One example they give is to enable Wal-Mart stores to determine how many MasterCard holders spend $25 or more on sporting goods in January and February. However. is also in St.” Visa. in a single 525. or monthly transaction. which was built on open land. the processing was much faster. MasterCard’s vice president of systems development. Visa started to run analyses for the banks on its own computers. despite the increasing volume. lacobuzio said that such a strategy should appeal to state and regional banks. Andrew Clyne. What kind of decision-support systems did MasterCard develop? How are they related to its business strategy? Source: Docstoc. As Caro said.daily. it mainly supplied the data online or on disks to its bank customers. which are applications that have the goal of helping banks and merchants work together to generate more purchases from the merchants if they are paid for by MasterCard. which was opened in May 2002. MasterCard’s new data storage site. What is the role of information systems in its new strategy? 2. The complex. The changeover to the new site happened over a weekend with almost no problem. suggested that Wal-Mart could send these card-holders the right to obtain tickets to their closest major league baseball team based upon future sporting goods purchase above a certain dollar minimum. Louis. he believes it is likely that national and international banks would have already developed and are using their own analytical software. says Iacobuzio.

The company’s new strategy required a system that would be able to keep a record of every transaction of every customer for three years. It could also help them increase efficiency in key processes like a bank was requiring its merchants to verify the whole process by using the telephone to call in one transaction out of 50 for approval (rather than using a telecommunications method). To do this they will have to show benefit to banks over use of other cards. The process and function clearly that of an information system and to be specific decision support systems.1. At the core of all this is the information systems required to store. It could also provide information to banks that could help them take key decisions. organise. while most banks were requiring only one transaction in 500. MasterCard hired 27 full time developers to help develop software which would mine the data and use Business Intelligence to deliver the data in forms which are most useful for the . The core of the new strategy was that MasterCard wanted to use the large amount of data resources that it had to help secure their critical success factors and their profitability. process the data intelligently and then to communicate them to the clients to help them take key decisions. Because call-ins cost about $3 each. Describe the new business strategy MasterCard developed. The overall objective of any strategy that MasterCard follows will be to ensure that banks issue more MasterCards than any other card. The core clients are banks and MasterCard started providing them data so that banks could drive sales of their credit cards since the interest from the balances on the credit cards.000 a year by switching over to the one in 500 method. Another bank was turning down one one transaction out of five because so many call-ins were timing out. What is the role of information systems in its new strategy? Ans1. The strategy included ways MasterCard and its member banks could use that data to increase their credit card business. An example given is of Walmart where MasterCard helps them identify customers who spend over $25 and then send them promotional schemes linking furniture purchases to the baseball teams that they support. The company decided to build a new data center help deal with its data processes. By changing its set up. The bank was able to discover that most of the customers turned down were actually creditworthy. that bank could save $300. the bank would be able to eliminate thousands of unnecessary lost transactions.

Louis. including the dollar amount. location. they would be inclined to push MasterCard more often. making networks available to collect and use the data. to make the data more useful. It also foresaw growth as a result of its change in strategy. and provide support for the transactions. MasterCard also planned to add other data fields. For example. and it wanted to consolidate the computer centers while enlarging the new center so that it would be able to handle both the current volume and the planned volume as it expanded. Visa and MasterCard are associations of banks that issue the credit cards. to protect MasterCard users. banks like the Drawing Business Objects Web Intelligence software in 2001. and card number. it did decide not to include demographic data such as incomes and ages. such as ZIP codes. What kind of decision-support systems did MasterCard develop? How are they related to its business strategy? Credit (change) cards have been very big business for several decades. They market their cards. The company’s new strategy required a system that would be able to keep a record of every transaction of every customer for three years. all in order to persuade the banks to choose MasterCard over Visa. often several different cards.clients. . However. At that time it was storing nearly 50 terabytes (50 trillion numbers and letters) of data. Such analysis could help banks determine the types of customers that were most profitable or find ways to appeal to more potential MasterCard customers. 2. MasterCard’s goal was to give its members (the banks) direct access to their customers’ data as well as tools to analyze all of this data. The strategy included ways MasterCard and its member banks could use that data to increase their credit card business. It also developed MarketScope which helped to deliver the aforementioned solution for Walmart. if banks could use MasterCard tools to improve their analysis of the profitability of the cards in their portfolios or gain more customers and transactions to process. Missouri. merchant. At the time it had three separate computer centers on four floors in the suburbs of St.

weekly. For example.About 28. MasterCard assigned 35 full-time developers to the task of identifying and creating software tools to accomplish this task. The banks can then compare the results from one market (such as a United States state or region. to identifying profitable customers has proved to be vital. MasterCard needed not only to make each bank’s data available to them. J. to identifying and acquiring potential customers. P. the largest issuer of credit cards. or monthly transaction. Drawing on Business Objects Web Intelligence software in 2001. To draw these customers into using its credit card transaction data. called the Business Performance Intelligence.000 banks and financial service companies issue MasterCard credit cards. but it also needed to make available appropriate analytic software. One of MasterCard’s new tools. Morgan Chase likewise was convinced to use MasterCard for 80 percent of the cards it issued. MasterCard persuaded Citigroup. The strategies hence developed have been instrumental in increasing the customer base of Master card and an effective Decision Support System has been framed. is for operational reporting and includes a suite of 70 standard reports that banks can use to analyze their daily. . to push MasterCard over Visa so that 85 percent of its credit cards came from MasterCard versus only 15 percent from Visa. While with providing banks with gaining new customers. in 2001. these developers created and programmed 27 tools for the banks to use. or a single country) with that of another market.