Mastercard and Visa have been battling each other for market share for decades. These days, their competition is increasingly taking place via fintech startups.
An example is Revolut, which will use Mastercard when it launches in the US this year, according to a statement. The London-based financial app and debit-card operator will also partner with Mastercard for at least 50% of existing and future cards issued in Europe (Visa will have the other half). Revolut has an EU banking license from Lithuania’s central bank and will partner with a US-licensed bank when its rolls out in America.
In an effort to strike back, Visa recently said it will partner with Revolut as the startup expands in 24 new markets, for a total of 56 around the world. And while Revolut will start out issuing Mastercard in the US, Visa says it will get a chunk of that business from Revolut over time. Revolut says 75% of its cards outside of Europe will eventually be Visa branded.
As more transactions flow through digital startups instead of traditional banks, fintech firms represent increasingly important partnerships for the card networks. These startups could also prove vital for the card networks’ continued grip on payments, as physical cards become less important and transactions become more virtual. Four-year-old Revolut offers foreign exchange and stock and crypto brokerage as well as peer-to-peer payments. It says it has 8 million customers, and more than 1 million of them use its services every day.
Visa executives have confessed that they were slow to chase the fintech craze but say they are catching up. Mastercard claims it is the clear leader in the fintech game: The card network says it is the “partner of choice” for 60 digital banks and financial startups, which is twice as many as two years ago.
“We are very confident,” said Sue Kelsey, executive vice president and global head of prepaid cards at Mastercard. “I don’t think this is a draw by any stretch.”
Card transactions and online commerce are soaring, making payment companies some of the most valuable financial companies in the world. Mastercard and Visa’s stocks have each returned more than 30% this year, and together they have a market capitalization of more than half a trillion dollars. These payment giants take a tiny toll of a few basis points on card transactions: They processed more than $5 trillion during the most recent quarter, a 5% increase from a year earlier, amounting to nearly $10 billion in revenue.
Revolut, meanwhile, is part of a wave of digital upstarts that offer banking services through slick app interfaces instead of costly bank branches. As it expands globally, Revolut is looking to raise $1.5 billion, according to Sky News, in a deal that would value the company somewhere between $5 billion and $10 billion. Some $1 billion of that funding will reportedly be in the form of a convertible loan that converts to stock if Revolut obtains a US banking license.
While European companies like Revolut, N26, and Monzo have proven that they can quickly acquire legions of customers, questions remain as to whether they will prove better than tech unicorns like Uber at converting those users into profitable, sustainable businesses. All three fintech firms are seeking to make inroads in the US.
Some investors are wary of heady fintech valuations. “I have a Revolut card, sure,” said Mark Tluszcz, chief executive of Mangrove Capital Partners, a self-described contrarian investment firm. “But is that a long-term business? I don’t know.”