MasterCard Inc. (MA:US)’s approach to making bank-card transactions more secure could give it a competitive edge, analysts said after Target Corp. (TGT:US) awarded its portfolio to the company yesterday over larger rival Visa Inc. (V:US)
Target, which suffered a data breach during the holiday season, said its co-branded cards and in-house REDcards would use MasterCard’s network and technology instead of Visa’s.
Visa and MasterCard have given retailers and banks until October 2015 to adopt so-called EMV technology or assume liability for bogus transactions. Merchants and lenders can use chip cards that require a signature or a personal identification number. While Visa’s approach doesn’t distinguish between the two, MasterCard’s emphasizes PIN, which could improve its prospects with retailers who prefer that method.
“We were not anticipating the EMV shift could be catalyst for portfolio movement from Visa to MasterCard and this shows that there are some opportunities,” David Darst, an analyst at Guggenheim Securities LLC, said of Target’s decision.
Target said it would accelerate its move to chip-card technology after tens of millions of credit- and debit-card accounts were breached late last year. The Minneapolis-based retailer said yesterday that upgrade would include chip-and-PIN.
“Target is very publicly broadcasting that they are an early adopter of EMV and it’s not just EMV, it’s also chip-and-PIN,” said Darrin Peller, a Barclays Plc analyst. “That gives room to someone like MasterCard to gain market share.”
Earlier this month, Wal-Mart Stores Inc., the largest U.S. retailer, chose MasterCard to handle transactions for its store-branded credit cards, ending a nine-year relationship with Discover Financial Services.
While Target’s deal with Purchase, New York-based MasterCard is a “nice win,” the revenue boost should be “fairly negligible,” according to Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods in New York. Target cards currently are co-branded with Foster City, California-based Visa.
The deal may boost MasterCard’s annual revenue by about $13 million, or 1 cent a share, Sakhrani said.
MasterCard rose 0.7 percent to $72.55 at 12:03 p.m. in New York and Visa was little changed at $202.72. The shares have slid 13 percent and 8.9 percent, respectively, this year.
EMV -- a technology named for founders EuroPay International, MasterCard and Visa -- is standard in Europe and much of the rest of the world and makes it more difficult for hackers to clone card data. EMV has been slower to catch on in the U.S. in part because it cost merchants and issuers more than cards with magnetic strips.
“Target is in a position where they need to show how they are changing,” said Gil Luria, an analyst at Wedbush Securities Inc. “By switching to MasterCard -- and going with that perception that MasterCard is more oriented toward PIN -- they can communicate that they are making a change to become more secure.”
Requiring a PIN adds security that protects against fraud involving lost or stolen cards. While MasterCard’s strategy allows for either PIN or signature, it supports a hierarchy that holds whichever party -- issuers or merchants -- offering the least secure method liable when cards are compromised. Visa doesn’t have a similar pecking order.
“Whatever verification method is adopted is the choice of our merchant and financial institution clients and we will support whatever verification method they prefer,” said Paul Cohen, a Visa spokesman.
Target choosing MasterCard also means that the company may have more opportunity to gain debit-card market share, according to Barclays’s Peller. Visa currently has the majority of the U.S. signature debit-card market, he said.
“It makes the landscape more competitive for debit,” as more PIN technology is introduced, Peller said.
Groups including the National Retail Federation have also said they prefer chip-and-PIN cards. As the industry continues its conversion, it’s possible MasterCard may win more business from merchants advocating for PIN technology, according to Guggenheim’s Darst.
“There are different times when there could be portfolio or market share movement from Visa to MasterCard,” Darst said. “This is one of them.”
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