Nearly two years after forming a joint consulting venture with an Indian technology firm, MasterCard International says the venture is thriving.
Mascon-MasterCard Global Technology Services netted more than $5 million of revenue in its first 10 months and is expected to generate $7.5 million this year.
It initially offered consulting services to MasterCard's member banks that wanted help with their core transaction processing software. Now it offers software services and technology support to anyone who needs it.
Given the current appetite of U.S. financial services companies for keeping costs down by outsourcing - especially to countries with inexpensive labor pools, such as India - MasterCard says it anticipates a continuing stream of income that it had not anticipated back in 1998, when it began its relationship with Mascon Global Ltd.
The card giant owns 49% of the venture; Mascon, of Chennai, India, owns the rest.
MasterCard hired Mascon to address its internal Y2K conversion issues and the ongoing overhaul of its transaction processing system, which MasterCard says is now complete. It says looked abroad because it was hard to find qualified experts in St. Louis, where its processing operations are based, and because Indian labor is cheap.
"We couldn't attract enough people in St. Louis to get the job done," said Rob Reeg, the senior vice president of global technology and operations at MasterCard. "Indian resources are about one-third to one-half the cost of a U.S.-based resource."
It initially contracted with Mascon for the services of 25 engineers. During 1999 and a good part of 2000 as many as 40 Mascon software engineers worked with Mr. Reeg's staff in St. Louis and helped rewrite MasterCard's core systems.
Mr. Reeg said that, because of the 11-and-a-half hour time difference between St. Louis and Chennai, there was an interesting side benefit: "As we went into the actual testing of the new applications, we had 24/7 coverage - we never had to have anyone work nights."
In tackling its internal problems, MasterCard stumbled onto a solution that helped its bottom line and led to the joint venture, which was formed in June 2001, he said.
Around 140 engineers work for the venture, about 60% of them in India, another 40% in St. Louis, and what Mr. Reeg called a "few floaters" in Belgium and South Africa. Mascon's 800 engineers can be pulled onto a project whenever they are needed, he said.
With Mascon's help, MasterCard launched a new clearing system on Jan. 25, 2002, that offers enhanced transaction data. So far 328 MasterCard banks have been converted to the system, and another 53 are in the process of converting, he said. That process is slated to end in April.
Two banks sought help from the MasterCard/Mascon venture in making the conversion, and other clients have signed up for help with other projects.
One such project involves Magneprint, an antifraud system being backed by Malaysian banks that relies on the digital fingerprint left by the magnetic stripe on the back of a credit card when it is swiped at the point of purchase. The specific issue the banks were looking to address involved the skimming of funds off individual card accounts, Mr. Reeg said.
The MasterCard/Mascon venture is also working on a telecommunications billing software project for a nonbank, which Mr. Reeg would not name.
MasterCard has just begun the process of determining what its consulting strategy will be, he said. "We know we have a good asset here."
The venture is positioned primarily as an offshore resource for banks, each of which may have as many as 500 software applications for individual services, such as accounting, credit card issuing, and loans, he said. "If there is any change to the software itself, there is usually a programmer who sits behind it."
