MasterCard Canada Picks up Steam

  Visa dominates Canada's bank card market. But a resourceful and innovative MasterCard lately has been making inroads.
  Of Canada's 14 most recent entrants to the credit card market, 12 have joined MasterCard, according to Kevin Stanton, president of MasterCard Canada.
  Canada is a nonduality country, meaning an issuer only can belong to Visa or MasterCard, but not both.
  Although MasterCard is chalking up victories, this is still a David versus Goliath battle. In 2005, according to Canadian Bankers Association and Visa Canada figures, Visa controlled 79% of the market in combined MasterCard and Visa sales volume of C$190.6 billion. Visa's share, however, is down slightly from 80.6% in 2004.
  MasterCard Canada is using a three-pronged strategy that involves finding new customers through cobrand agreements with retailers, pushing innovation and encouraging U.S. issuers to enter the Canadian market, says Stanton.
  MasterCard developed this strategy when the Canadian market was not looking good for the card association.
  Things began to go bad for MasterCard in 1994 when Royal Bank of Canada, a Visa issuer, bought Royal Trust and converted its MasterCard portfolio to Visa. As a result, MasterCard's share of gross dollar volume fell from 32.2% in 1993 to 28.2% in 1994.
  Things got worse in 1995 when Scotiabank, a Visa issuer, bought Master-Card issuer National Trust. This caused MasterCard's share of gross dollar volume to plummet further, to 26.8%.
  "We worried about what we should do. So in 1997 we developed a strategy that encouraged U.S. MasterCard issuers to come here," Stanton said.
  Around that time, MBNA Corp., now owned by Bank of America, and Capital One Financial Corp. joined MasterCard Canada and began issuing there, Stanton says. JPMorgan Chase & Co. and GE Money, part of GE Consumer Finance-Americas, followed years later.
  Issuers praise MasterCard Canada for its "I want you" style. "MasterCard Canada has taken a very aggressive approach to attracting new members, and it has proven it can work with new members," says Bruce Poore, vice president and general manager of cards at GE Money Canada.
  Some U.S.-based issuers have grown MasterCard Canada's market share through acquisition. Chase purchased Sears Canada's MasterCard and proprietary store card portfolios for C$2.2 billion (US$1.85 billion) in August 2005. Then in April of this year, GE Money acquired Hudson's Bay Co.'s proprietary store-card portfolio.
  The U.S. issuers also have grown their card portfolios through affinity and cobrand agreements in Canada. GE Money Canada's quest for niche-customer segments has led it to issue the Readers Rewards MasterCard, which targets members of Doubleday Canada Ltd.'s book clubs. GE also now issues the cobranded Kawasaki motorcycle card, which is linked to loans for Kawasaki motorcycles.
  "As we looked at the Canadian market, we saw an opportunity to utilize the distribution channels offered by retailer partners," Poore says.
  CO-BRANDING EFFORTS
  Matching retailers with issuers is very much part of the service that MasterCard sees itself offering. "We get parties talking," says Craig Penny, MasterCard Canada vice president. "If retailers are interested in a cobrand opportunity, we will work with them to find an issuing partner that meets their need."
  MasterCard also has signed big Canadian retailers. Among its major retail wins is Loblaw's, the Brampton, Canada, supermarket chain. Loblaw's President's Choice financial arm issues the President's Choice MasterCard, a rewards card.
  MasterCard Canada also has signed an agreement with Canadian Tire Corp. Ltd., which owns 455 stores nationwide. Canadian Tire owns Canadian Tire Financial Services, issuer of the Options MasterCard.
  MasterCard's strategy to attract innovators also is reaping benefits. Two of the U.S. entrants, MBNA and Cap One, fall into this category, Stanton says. Relative newcomers, they now are among MasterCard's top 10 issuers in Canada.
  Stanton considers MBNA and Cap One to be innovators because of the low interest rates that they offer. "The most favorable interest rates in Canada are offered by Capital One," he says. "Until Capital One came along, offerings were pretty uniform."
  Cap One markets its cards by direct mail, relying on its low interest rates to gain market share. The issuer entered Canada in the 1990s and grew by offering an interest rate of 9.9% at a time when traditional Canadian issuers were offering 16%, says Bill Cilluffo, Capital One Canada president.
  At MBNA, the MBNA Gold MasterCard has a 3.9% balance-transfer rate for the first four months. The rate for purchases on the card is 17.9%, and balance transfers revert to that rate when the initial offering period ends.
  New issuers are choosing MasterCard Canada over Visa Canada for a number of reasons. "When we entered the market, we examined both associations and determined that MasterCard was the best fit for us in Canada," says Cilluffo, declining to discuss why Cap One did not sign with Visa.
  Stephen Stewart, senior vice president of Loblaw's President's Choice Financial, says MasterCard does a good job of providing support. "We don't have to struggle to get the information they have available," Stewart says. "Master-Card [officials] were more aggressive [than Visa]. [They] tried to make conditions for us that made it possible for us to succeed."
  President's Choice also selected MasterCard because Visa's dominance in Canada provided an opportunity for a second card. "We went with MasterCard because 70% of Canadians had Visa cards," Stewart says. "We felt that for a second card, more people were likely to take MasterCard."
  OK TO BE NO. 2?
  Indeed, by being associated with the No. 2 card association, BMO Bank of Montreal believes it can provide customers something different that will move Master-Card to the top of customers' wallets. "We have a significant number of customers who are taking MasterCard as a secondary card, and we try to win these customers as primary customers," says Mike Kitchen, BMO Bank's marketing manager for retail cardholder products.
  Scott Bonikowsky, Canadian Tire vice president, says the retailer likes MasterCard's attitude. "What we liked was the culture of the organization, its customer focus, the service level, and MasterCard's willingness to understand our business and growth strategy," he says.
  Loblaw's and Canadian Tire's association with MasterCard has paid off.
  Loblaw's President's Choice has gained 1 million customers since starting its credit card program five years ago, Stewart claims.
  Since Canadian Tire started converting its private-label retail card portfolio in 1997 to the MasterCard Options card, receivables have increased from C$500 million to C$3.3 billion, Bonikowsky says.
  Issuers that signed with MasterCard say they also are attracted to the association's innovative approach. "MasterCard was always considered to be the more flexible and progressive association compared to Visa," says Denis Dub?, senior manager of public relations at Montreal-based National Bank of Canada. "It has a better fit with our customers than other networks and can support us in entering and growing in new markets."
  National Bank co-founded MasterCard Canada with BMO Bank in 1973, five years after Canada's largest banks launched Visa Canada.
  Some issuers also like MasterCard Canada's marketing prowess. "MasterCard has done a brilliant marketing job promoting its own brand," Kitchen says. "Everyone is aware of the 'Priceless' campaign. It has been an incredible brand builder. This rubs off on us."
  BMO Bank also does joint marketing with MasterCard. "For the recently completed 2006 FIFA World Cup, MasterCard was the global sponsor," Kitchen says. "We leveraged their sponsorship and issued our FIFA World Cup card."
  MasterCard's Penny notes that the card association offers two levels of marketing. Besides promoting the brand with its "Priceless" campaign, MasterCard tailors a marketing program for issuers, he says.
  MasterCard also makes available MasterCard Advisors, a user-pay consultancy service that offers advice on best practices, cost reduction, sales improvement, marketing campaigns and research, says Penny.
  PAYPASS BENEFITS
  In addition, MasterCard is working with issuers on new products and technologies, including contactless and prepaid cards.
  Citibank Canada, MasterCard Canada's fourth-largest issuer, has embraced PayPass, MasterCard's contactless credit and debit card technology, and Citibank is adding PayPass to its co-branded Petro-Canada credit cards. "Card issuers have to compete against all types of cards," says MasterCard's Stanton. "The more features they can offer the better they can compete."
  Stanton also sees the introduction of PayPass as a means to pursue growth on the acceptance side. "Canadians want more places to use PayPass, and this technology enables us to strengthen our relationship with oil and gas merchants," he says.
  MasterCard Canada still faces an uphill struggle, but the card association is making inroads against Visa by recruiting issuers from the U.S., signing cobrand deals and pushing technology. And MasterCard believes the strategy eventually will move its cards to the top of consumers' wallets.
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