Visa and Mastercard: The global payment duopoly (2024)

Summary

The global payments processing market is dominated by two major players: Visa and Mastercard. These two companies account for 90% of all payment processing outside of China and have a combined market value of approximately $850 billion. How is it possible that, in the era of global competition, such a large market niche is completely dominated by only two players? Let's explore this in-depth and examine the increasing challenges they face in protecting their market positions.Dominant market share: Visa and Mastercard control approximately 90% of all payment processing outside of China, showcasing a significant duopoly in the global payments processing market with a combined market value of around $850 billion.Historical foundations: The origins of the credit card industry trace back to the 1950s with companies like Diners Club and American Express pioneering the space. Visa and Mastercard emerged from major American banks, leveraging first-mover advantages and restrictive contracts to solidify their market position.Competitive advantages: The analogy of payment processing to railroads highlights their control over digital transactions, benefiting from network effects, scalability, and distribution through major banks.Challenges to the duopoly: Recent years have seen challenges to their dominance, from major companies like Amazon negotiating for lower fees, to the rise of national payment processors like RuPay in India.Historical Context: Origins of the Credit CardIn 1950, Diners Club issued the first modern credit card to exist, representing the type of cards familiar to us today. Seeing its success, a range of large financial institutions and other companies in America began issuing their own form of credit cards.In 1958, American Express emerged as one of the first major players to issue its own charge cards. Public interest was so substantial that American Express had already issued 250,000 of its cards before the official launch date, despite the card's high ann...