MIAMI - MasterCard International has started a $50 million internal fund to invest in technology companies working on new types of payment systems, the company said Wednesday.
The fund - which will make its first investments this month - plans to bankroll start-ups or existing companies that seem to offer MasterCard a strategic partnership and significant financial returns, the card association said.
The fund is to focus on emerging payment technologies including micropayments, online consumer-to-consumer payments, stored value systems, and recurring payments such as phone and utility bills. Some industry analysts have warned that unless banks work closely with the companies developing these products they risk losing customers.
"We looked at how technology was evolving and understood that we needed to take equity positions in our partners to strengthen those relations," said Linda Batson, senior vice president of new markets and investments at MasterCard and head of the fund. "It gives us access to new ways and places our cards will be used."
"The hype is that [new payment technologies] could be bad for banks, but we feel there's a new paradigm in the business," Ms. Batson said. "MasterCard can not only shift share but gain share from cash and checks."
One example that has ruffled feathers in the banking community is the possibility of telephone companies' enabling cellular phone users to make purchases by phone and charge them to their phone bills. If banks get involved with mobile commerce early, telephone bills could be paid directly through a credit card account, thus averting the risk of disintermediation, Ms. Batson said.
MasterCard has said that backing emerging technologies is a way it can gain market share from Visa International. But MasterCard is still playing catch-up.
Visa has been investing in technology start-ups since 1994 and can boast of big names such as Yahoo and Trintech, the electronic wallet developer, as its prescient picks. MasterCard has a strategic partnership with Trintech Group that will give it equity in the company if certain benchmarks are met; however, Visa invested in San Mateo, Calif.-based Trintech before it went public, not after. MasterCard would not comment about Visa's investment success; it did say it would invest only in "strategic partners" in the payments systems space.
"If it's not a strategic investment, our banks can do it," Ms. Batson said. "We have a premier brand, and companies should pay us to use it."
Last week, MasterCard announced it was putting up $5 million to establish the MasterCard Future of Transactions Laboratory at the Massachusetts Institute of Technology Media Lab in Cambridge, Mass. Ms. Batson said this money was not from her new fund and that the MIT lab would help identify new ideas and work to commercialize them.
MasterCard said it hopes to have $20 million from the fund invested by yearend and has appointed 15 people to review investment possibilities. All investments must be approved by a committee that includes several key executives and a board member, the company said.
"MasterCard firmly believes in developing strategic partnerships that provide our members with access to cutting-edge technologies and a large, diverse pool of talents to tap into," said William I Jacobs, senior executive vice president of strategic ventures at MasterCard. "Investing in partners not only further demonstrates our commitment to them but also allows MasterCard to influence the development and define the standards of future technologies that will impact our members."