SAINT PETERSBURG STATE UNIVERSITY

GRADUATE SCHOOL OF MANAGEMENT

MasterCard - An Analysis of
Entrance into the Russian
Market

Essay on the course:

International Business Strategy

Students:
Anastasia Egorova
Claire Locker
Klemens Anderl
Felix Volker

Saint Petersburg
2009
Table of content

INTRODUCTION.............................................................................................................. 3
1. GENERAL INFORMATION ON MASTERCARD .................................................. 4
1.1. DEFINITION OF PLASTIC CARDS .................................................................................. 4
1.3. MASTERCARD HISTORY ............................................................................................. 6
1.4. INTERNATIONALIZATION OF MASTERCARD ............................................................... 6
2. CURRENT SITUATION OF CREDIT CARD BUSINESS ...................................... 8
2.1. CURRENT MARKET SITUATION OF CREDIT CARDS WORLDWIDE................................... 8
2.2. MARKET SITUATION OF CREDIT CARDS IN RUSSIA .................................................... 11
2.3. EFFECTS OF FINANCIAL CRISIS ON CREDIT CARD INDUSTRY ...................................... 12
3. MASTERCARD ENTRY STRATEGY IN RUSSIA ................................................ 13
3.1. HISTORY OF MASTERCARD IN RUSSIA ..................................................................... 13
3.2. MASTERCARD ENTRY TO RUSSIA ANALYSIS ............................................................ 14
Networking approach................................................................................................. 14
Porter’s 5 Forces Analysis......................................................................................... 15
Bargaining power theory ........................................................................................... 17
Transaction Cost Analysis ......................................................................................... 19
Behavioral approach ................................................................................................. 20
Strategic approach ..................................................................................................... 21
Dunning’s OLI (-MA) theory ..................................................................................... 22
3. RUSSIAN PERCEPTION OF MASTERCARD....................................................... 23
3.1. BEFORE THE CRISIS .................................................................................................. 23
3.2. AFTER THE CRISIS..................................................................................................... 24
3.3. USE OF MASTERCARD IN GENERAL .......................................................................... 25
3.4. SURVEY FINDINGS .................................................................................................... 26
4. CULTURAL DIFFERENCES IN USE OF CARDS ................................................ 27
Internet (e-commerce) ................................................................................................ 27
Free movement of goods ............................................................................................ 28
E-Cards future in Russia ............................................................................................ 29
Varieties in the world ................................................................................................. 29
5. FUTURE OUTLOOK FOR MASTERCARD IN RUSSIA ..................................... 30
CONCLUSION ................................................................................................................ 32
REFERENCES ................................................................................................................. 33
APPENDICES .................................................................................................................. 35
APPENDIX 1. THE “FOUR-PARTY” PAYMENT SYSTEM ...................................................... 35
APPENDIX 2. PAYMENT SYSTEMS IN RUSSIA – MARKET SHARE ....................................... 36
APPENDIX 3. GROWTH IN THE NUMBER OF CARDS IN RUSSIA, 2002-2006 ....................... 36
APPENDIX 4. MASTERCARD SURVEY QUESTIONNAIRE .................................................... 37
 3

Introduction
Who is MasterCard? It is a very simple question that should involve a an even
simpler response, but unfortunately this is not the case. MasterCard isn't just a line of
credit, a means to electronically pay for products, or a financial magician; MasterCard is a
way of life, a means to simplify life's greatest burdens.
At a time when consumers, businesses and governments are striving to exercise
greater financial management, MasterCard offers an array of payment solutions that make
commerce easier, safer and more efficient. Payment cards give people the power to
purchase items in stores, on the Internet, through mail-order catalogues and over the
telephone. For merchants, electronic payments are opening doors to hundreds of millions
of consumers, making it easier to do business locally or globally. At the same time,
electronic payments help prevent fraud and loss and create a seamless experience that
drives consumer loyalty by offering “the best way to pay for everything that matters.”
In this paper we focus on the analysis of MasterCard company operations in Russia.
In the very beginning, we give a short introduction about the plastic cards varieties in
general and the definition of MasterCard business, including the brief history of the
company. In the second chapter we make an overview of the current situation on the
plastic cards market both in Russia and worldwide, while also considering the effects of
the financial crisis. Later on, in the main part of the paper we discuss the MasterCard
entry strategy in Russia from the point of view of different internationalization concepts.
Meanwhile, in order to get a better understanding of MasterCard‟s position on the
Russian market we analyze the Russian perception of MasterCard and point out the main
cultural differences in the use of cards in different part of the world. Finally, we provide
our personal opinion on the future of MasterCard‟s strategic presence in Russia.
This paper is based on the secondary data that was found on the company‟s website,
in various Russian and foreign language business journals, and the information from
international databases, for example Datamonitor and Global Market Information
Database. The primary data used in the paper includes the survey that was conducted
online with the aim to discover the image of MasterCard in Russia. Furthermore, we were
lucky to get some useful information from the company representatives in the form of
recently published interviews.
 4

1. General Information on MasterCard

1.1. Definition of plastic cards
A plastic card is a thin card that contains identification information such as a
signature or picture, and authorizes the card holder to charge purchases or services to the
card holder‟s account. Today, the information on the card is read by automated teller
machines (ATMs), banks, and the internet.
It all started in the 1920s, when individual companies (such as oil companies and
hotels) issued these „plastic cards‟ for purchases made at their businesses. However, these
cards could not be used outside of the company.
In the 1950s a „universal‟ card was introduced by Diners Club, INC. this was
when credit cards were made. These cards allowed the card holders to use the cards in
various locations and businesses. The way the cards worked was that there were annual
fees, and depending on the plan, the card holders were billed either monthly or yearly.
Later on the „bank credit card system‟ was introduced. Under this system, the
bank credits the account of the merchant at each sale and bills to the card holder at the
end of the billing period to account for the sale. The card holder, in turn, pays the bank
either the entire balance or in monthly installments with interest. This is the system that
all credit cards are under today. 1. Now there are three different types of cards: credit
cards, debit cards, and prepaid cards.
Credit cards are cards that offer customers and businesses short-term lines of credit.
This allows for the customer to pay for unexpected/large expenses without actually
paying for the product that second. Instead, when using the credit card, the card holder is
borrowing money that they must pay back over a short period of time. Credit cards also
can be used for every purchases and it builds up the customer's credit history. This credit
history is actually quite important. If the customer has a good credit they can apply for
mortgages, vehicle loans, etc. Businesses and insurance companies sometimes even look
at the customer's credit history to see if they are a good candidate for their organization.
Without a credit history, one cannot do any of the things stated above.
What actually goes on in a transaction through a credit between and a merchant
and card holder is quite interesting. First, there is a limit set on how much the card hold
can borrow. This limit is called the credit limit and is decided by the card issuer's on the

1
How Credit Cards Work [Electronic resource] – Oct 2009. – US, HowStuffWorks, Inc., 1998-2009 -.-
Режим доступа: http://money.howstuffworks.com/personal-finance/debt-management/credit-card.htm,
свободный – Загл. с экрана.
 5

basis of the card holder's credit history. To pay using a credit card the card holder's or
merchant swipes the card through a terminal. This terminal transfers information to the
financial institution that issued the card to the card holder. If the amount is not over the
credit limit and the security technology doesn't suspect fraud, the transaction is approved.
This approval happens within seconds. After this approval, the credit limit is reduced by
the amount that the card holder just 'paid'.
Just about every month, the financial institution that issued the card mails the card
holder a 'statement'. This statement tells the card holder about all the transactions that
took place over the previous month. The card holder can do two things at this moment,
he/she can decide to pay the balance in full for the month or pay a little bit of the
expenses and pay the rest the over the next couple of months. If the card holder pays in
full that month then they do not get charged any extra fees and just partook in a free loan.
If they decide to pay over the next few months, they are charged various fees on top of
the expense for the good or service. These are the fees that give MasterCard its revenue.
Compared to popular thinking, the debit card was not created before the credit card,
but actually many years later. A debit card is like a credit card but the things the customer
is paying for is coming straight out of their deposit or brokerage account. This means that
when the customer is using their card they do not pay off the money that the card just paid
for. Instead, the money is directly taken out of the customer's checking account (in their
bank) and directly deposited into the merchant's account. The Customer can also access
their checking account through these cards by using an ATM. This allows for easy access
to cash anywhere the customer is. (MasterCard)
The first debit card transaction, using an ATM card and personal identification
number (PIN), occurred in the 1980s, and the first debit transaction authorized by a
signature rather than a PIN was processed in 1988.(MasterCard: All About Payment
Cards). No matter how new these debit cards are they are still much more popular today
than credit cards. Actually, by 1995, debit cards overtook credit cards in popularity, and
the use of checks started to decline in 1998.
A prepaid card is a card where a set amount of money is deposited into the card
prior to its first use. During a transaction the money is directly taken out of the card's
value. There are two types of prepaid cards: single-purpose and multipurpose cards. A
single-purpose card, also known as a closed-loop card, is only used for a certain place
such as a certain department store or a telephone card in which one can only use it to call
people. Multipurpose cards, also known as an open-loop card, are cards that are bought
 6

through banks and has the bank's logo branded onto the card. The only difference
between these cards and credit/debit cards is that there is a set amount of money in the
card. The card holder accesses the money at any ATM and can pay for goods and services
anywhere he/she pleases. As soon as the money runs out, the card is worthless.

1.2. What is MasterCard?

But what does MasterCard exactly do? It provides credit, debit, and prepaid cards
from over 25,000 financial institutions. However, MasterCard is primarily a credit card
company and specializes in the innovation of these cards throughout the world. It is a also
a payment solutions company and through its three tiered business model as franchisor,
processor and advisor, the company has developed a new world for its card holders and
merchants. The company provides marketing, approval, and transaction services for a
variety of payment products in more than 210 countries and territories.
Regardless of the type of card, all of them act under the “four-party” payment
system. Under this system there are obviously four types of people, the card holder, the
issuing bank, the merchant, and the acquiring bank. First, the issuing bank provides their
customer with a card that they market and issue throughout their locations. Then the now
card holder buys a good or service. But before there are even cardholders buying goods or
services at this said business, the merchant's bank (or acquiring bank) must first enroll the
merchant in a program that accepts MasterCard (Cirrus or Maestro) cards. The merchant
(or the salesperson) then (can and does) accepts the MasterCard payment in exchange for
that good or service instead of cash. The transaction is over, the card holder receives the
good or service and the merchant receives the cash a few days later.
MasterCard manages a number of payment card brands, including MasterCard,
Maestro and Cirrus. MasterCard generate revenues from the fees that it charges its
customers for providing transaction processing and other payment-related services
operations fees, and by assessing its customers based on the dollar volume of activity on
the cards that carry its brands.

1.3. MasterCard history

MasterCard was established in the late-1940s when several US banks began
exploring alternatives to cash transactions. In 1951, the Franklin National Bank in New
York created the first formal credit card, and through the 1950s, the system expanded.
 7

Later, in 1966, a group of banks under the name „Interbank Card Association‟ entered the
business. Instantly this company spread and went global. In the 1970s it changed its name
to MasterCard.
MasterCard was the first to introduce a few things. This included a gold bankcard
program in 1981, the use of laser holograms to prevent fraud in 1983, and by 1987 was
the first credit card company to penetrate the Chinese market.
MasterCard took a number of key steps during the 1990s. The company launched
Maestro in 1991, a partnership with counterpart Europay International, which was the
world‟s first global online debit program. The first coast-to-coast national online debit
transaction in the US was completed by Maestro in 1992. In 1996, it introduced the
MasterCard Global Service, the first program to offer customers telephone access to core
emergency and special services around the world.
MasterCard merged with European counterpart Europay in 2002, to facilitate the
merger transaction with Europay. Europay was integrated into the global organization as
MasterCard‟s Europe region.
In 2004, the company announced plans to become a public company in 2005.
MasterCard made its initial public offering on the New York Stock Exchange (NYSE) in
May 2006. In the same year, MasterCard introduced new corporate name, MasterCard
Worldwide, and adopted a new corporate signature and tagline, “The Heart of
Commerce.” These two new concepts were established to express the global nature of
MasterCard.

1.4. Internationalization of MasterCard

It has already been stated that MasterCard is quite a global country. Two years
after MasterCard, or Interbank Card Association, was founded (1968) they entered into
the global market by making their presence known in the Mexican, Japanese, and
European markets.
In 1987 Russian entered the Chinese Market. This was very special for
MasterCard because this was the first ever payment card accepted there. A year later, in
1988, MasterCard entered into the Soviet Union. Now, MasterCard is in any area that one
can think of and with the help of its other cards it owns (like Maestro) it dominated most
of its competitors in all areas.
 8

MasterCard reported recently that it already generates half of its revenue outside
the US, making its revenue sources more geographically diverse than those of major
competitor like Visa. Part of MasterCard‟s gain came from the gradual conversion of
some European debit cards to Maestro over the past five years.
Now, MasterCard currently has 37% of card payment transactions in Eastern
Europe. This is a huge percentage because the company is up against American Express
and Visa as well as other lesser known European credit card companies. It does this by
taking advantage of its strong Maestro position in Western Europe. (powerpoint and the
rest of this section)
Although MasterCard is doing quite well in the European market it is having some
issues with his Maestro brand. This is due their late entry into the European market. It
now has to compete with well established brands like Germany's 'ec-Karte' card. Both are
almost identical in use so it is hard to market Maestro over these cards.
MasterCard has more cards/card holders than its competitors in the fast-growing
South Asian markets including Indonesia, Malaysia and the Philippines. Although
MasterCard‟s card payment transaction value share is higher in only in the Philippines,
growing card usage in South Asian markets will translate into greater value share for
MasterCard in the long term, particularly in the Philippines and Malaysia.
MasterCard also has great stakes in the Latin American region. It has almost 50%
of debit transactions in Brazil. This is due to its recent conversion from is partner's debit
cards (Redecard) to its Maestro debit cards. MasterCard is also one of the biggest card
issuers today in Colombia. They see great potential in this market due to increasing use of
their credit cards. In Mexico, MasterCard is dominated the prepaid card industry.
All in all, MasterCard, internationally, is a huge competitor. It has first movers
advantage in some areas, speciality advantage in other areas, and even preference
advantages in the remaining areas. With more advertisement and understanding of the
countries they work in, MasterCard will fully dominate the plastic card industry.

2. Current situation of credit card business

2.1. Current market situation of credit cards worldwide
The current financial crisis has severe effects on the business of companies in the
credit card business. MasterCard is of course not excluded from these economical
troubles (more about the situation of credit card companies in the financial crisis in part
 9

2.3). For a long time, the credit card business has been regarded as one of the most
profitable businesses in the financial services industry. MasterCard was one of the most
successful companies with its business model differing in one important point from its
competitors. Most of the companies in the business issue their cards on their own
(including market leader American Express), whereas MasterCard and its main
competitor VISA operate through a franchise system which allows its partners (banks) to
issue cards of MasterCard. The company is therefore not a direct business partner of
cardholders but with the banks which have the right to issue its cards. MasterCard itself
states that it is more a franchisor than an issuer of cards. It is therefore not directly
exposed to the possibility of defaulting borrowers.
The last 10 to 15 years saw rapid growth rates of revenues of credit card companies.
Aggressive advertising which was intended to outline the advantages of payment with
credit cards against traditional payment forms like cash and check (especially in the USA)
led to big rises in revenues and processed transactions. MasterCard increased the number
of its total transactions from $ 18.7 billion in 2007 to almost $ 21 billion in 2008, which
represents a rise of 10.56%.2 The increasing importance of this payment method was
furthermore supported by the increasing number of outlets worldwide which accept credit
cards. Recent security improvements in order to prohibit card fraud are another advantage
of this payment form.
There are four companies in the credit card business whose cards are supposed to be
accepted globally. We will focus on these four companies in this report, as there are
admittedly numerous other credit card companies but none of them are of that worldwide
importance. MasterCard and VISA are the only two companies which are not direct issuer
of cards but franchisors which allow their customers (issuing banks) to issue their cards
and use their processing utilities. American Express which is the market leader by
revenues and Diners Club are sole issuers of their cards. The competition in this industry
is very intense. It is often stated that these companies make most of their strategic
decisions and steps at one time. A typical example is the launch of a new security system
on credit cards which prohibits misuse of cards. This new system was first introduced by
VISA with MasterCard inventing a very similar system only short time afterwards.
MasterCard and VISA are also on pretty much the same level when it comes down to

2
MasterCard Annual Report [Electronic resource] – 2008. – US, MasterCard, 1994-2009 -.- Режим
доступа: http://investorrelations.MasterCardintl.com/phoenix.zhtml?c=148835&p=irol-reportsannual,
свободный – . – Загл. с экрана.
 10

acceptance of their cards. Whereas VISA has more outlets accepting its cards in the USA,
MasterCard has a little advantage in the European and Eurasian market. American
Express is the number one in the USA but lacks acceptance in Europe and Asia.
Credit card companies usually generate their profits through fees that issuing banks
(in case of MasterCard and VISA) or merchants which accept the cards (in case of
American Express and Diners Club) are paying to offer this form of payment. These fees
are usually called “interchange fees” and have been under heavy criticism and scrutiny by
various financial regulating institutions.3 The European Commission for example has
reviewed MasterCard‟s and VISA‟s interchange fees several times, as forbidden
agreements on pre-set fees are assumed. Credit card companies have been under scrutiny
because of their fees for the last several years and all of the big four have already been
sentenced to pay damages because of their practice of prohibition of competition through
predetermined fees. MasterCard for example has accounted almost $ 2.5 billion for
litigation settlements in its Annual Report for the year 2008. 4 This huge amount shows
the importance and severance of juridical decisions which are directed to punish
anticompetitive behavior.
Despite these drawbacks, credit card companies have been extremely profitable and
successful throughout the last recent years. The business model of these companies and
surveys of researchers which indicate that payment by credit and debit cards (which are
also offered by all of the big four companies) will gain market share from payment by
check or cash, lead to the assumption that the established companies in this industry will
enjoy a successful future.5 The negative effects of the financial crisis are of course a
severe problem but the long term prospects still seem to be very promising. Especially the
growth rates in transitional economies like the BRIC countries (Brazil, Russia, India and
China) seem to be very promising. Expansion to these regions is absolutely vital to stay
competitive as market growth in the USA and Europe is at a relatively low level.

3
Lyon. J. M. The Interchange Fee Debate: Issues and Economics [Electronic resource] / J. M. Lyon // The
Federal Reserve Bank of Minneapolis. – Jun 2006. – US, The Federal Reserve Bank of Minneapolis, 2009 -
.- Режим доступа: http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3235,
свободный – Загл. с экрана.
4
MasterCard Annual Report [Electronic resource] – 2008. – US, MasterCard, 1994-2009 -.- Режим
доступа: http://investorrelations.MasterCardintl.com/phoenix.zhtml?c=148835&p=irol-reportsannual,
свободный – . – Загл. с экрана.
5
Hayashi F. “A puzzle of card payment pricing: why are merchants still accepting card payments?”
[Electronic resource] / F. Hayashi // Review of Network Economics. – 2006. – Vol. 5. - RePEc, 2009. -.-
Режим доступа: http://ideas.repec.org/a/rne/rneart/v5y2006i1p144-174.html. – Загл. с экрана.
 11

2.2. Market situation of credit cards in Russia

Payment with credit cards is a relatively new system for Russians. A country which
had a communistic financial system and an artificially stable currency for a long time of
the last century is of course not immediately prepared for all the different payment
methods that have been established in the West. The system of credits is also a relatively
new one for Russians. The financial collapse of 1998 which saw banking savings of
Russians being vanished within a few days because of the plunging Ruble had also severe
impacts on the trustworthiness of the financial industry and financial services‟ companies.
Guseva and Ron-Tas described the Russian credit card industry in their paper in the
year 2001 with the following:
“Payment cards were unheard of in the Soviet era, consumer credit was in an
embryonic stage, and credit reporting did not exist. […] Finally, ongoing economic
instability and the unpredictability of Russia’s recent reforms make future extrapolations
on the basis of the past extremely difficult.”6
This quote emphasizes the difficulties that credit card companies and banks were
facing over the last several years. The introduction of a completely new system of
payment is nothing that happens in a short time. It is therefore not very surprising that the
credit card business in Russia is still not comparable to the European or American
business. Russia is still lacking outlets which accept cards, even though this number has
increased throughout the last years because of massive lobbying and incentives from
credit card companies. This is especially true for the two biggest cities, Moscow and St.
Petersburg. Furthermore, many Russians are still without credit cards and seem to be not
interested in getting one in the very next future.
Another big problem is the lack of cooperation between different financial
institutions. Banks were not used to cooperate with their potential competitors. This
cooperation is however absolutely vital to share information about creditors and the
possibility of defaulting customers. This lack of thrust is also very much responsible for
the nonexistence of any institutions which spread risk.

6
Guseva A., Ron-Tas A. Uncertainty, Risk and Trust: Russian and American credit card markets compared
[Electronic resource] / A. Guseva, A. Ron-Tas // American Sociological Review. – 2001. – Vol. 66. -
JSTOR, 2009. -.- Режим доступа: http://www.jstor.org/. – Загл. с экрана.
 12

2.3. Effects of financial crisis on credit card industry

The financial crisis has enormous effects on companies across all kinds of
industries. The credit card industry is especially affected as many customers of credit card
companies are dealing with severe problems to maintain their liquidity. A rise in bad debt
and defaulting customers are first of all a problem for the card issuer which is usually a
bank. Banks, however are now trying to renegotiate their interchange fees as they are not
willing to bare all the risk of defaulting debt. A once successful business model now turns
out to be very dangerous for a lot of financial institutions. Customers who roll over a
portion of their credit balance each month are called “revolvers”, these customers and the
interest that credit card companies gained from them were the industry‟s cash cows.
Nowadays, however these customers are very often struggling to redeem their credit. The
increasing number of unemployed people is also closely watched by all financial
institutions which are obviously afraid of any more bad debt and defaulting customers.
American Express already reacted to the severe situation with dramatic job cuts and
dramatically reduced marketing expenditures.7
But write offs of customers which eventually also affect companies like MasterCard
are not the only problem the industry is facing right now. The US-government is
preparing a law which prohibits the rise of interchange fees. All around the world, the
industry has constantly been under scrutiny and criticism for its interchange fees for
almost the last ten years. Class action suits against all of the big credit card companies
have very often led to companies paying damages for their routine of predetermined fees.
These fees are supposed to curb competition. The interchange fees have now also been in
the spotlight as the US-government prepares legislation that will prohibit rising
interchange fees. The European Commission has also announced that a cap of interchange
fees may be introduced within the next few months.
Moreover, credit companies have been under scrutiny for their interest rates and
their policy in case of defaulting borrowers. The US-government has introduced new laws
which have severe effects on the credit card industry. Punitive fees and increasing interest
rates which are a necessary reaction to the worsening customer payment behavior
according to credit card companies are now almost impossible to introduce. The
government has furthermore backed defaulting borrowers through legislation which

7
Credit cards in America [Electronic resource] / The Economist. – 21 May 2009. – US, The Economist
Newspaper Limited, 2009 -.- Режим доступа:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=13714206,– Загл. с экрана.
 13

makes it more difficult for lenders to gain damages after customer default for example
through loan securities. This step has led to massive criticism by credit card companies
which argue that it is their right to price the risk that they are facing and that these
imposed obstacles will lead to declining loans to customers. The US-government, on the
other hand, is trying to boost lending through incentives for banks. This two-sided policy
has come under heavy criticism from credit card companies. This situation is also
comparable to the European Union and many other countries like Russia or Japan.
Governments all over the world are trying to protect their borrowers. This is of course a
very difficult situation for the entire industry which is trying to maintain its independence
and its freedom from governmental intervention.

3. MasterCard entry strategy in Russia

3.1. History of MasterCard in Russia
The story of MasterCard in Russia begins in the 90s of previous century. One of the
first banks that got MasterCard‟s accreditation was Credobank, DialogBank and
Mostbank, the latter starting to issue MasterCard/Eurocard plastic cards in year 1992. At
the same period of time the Association of Russian banks – members of Europay and the
“Cardcentre” processing company were created.
The “Cardcentre” company was expected to be a single processing center for all
banks that were cooperating with Europay. Europay was working as a consultant during
the process of creating the processing system. However, in 1994 the idea collapsed.
Banks that have been engaged in building the united processing system finally decided to
have their personal ones.
Only in the year 1997 the official representative office of MasterCard in Russia was
opened. Before that such form of presence on the market was convenient for Europay.
Later on the scale of operations and the variety of challenges on the Russian plastic cards
market forced Europay to establish its own operations in the country.
An important step in the further development of MasterCard in Russia was in 2004
when the Association of Russian banks – members of Europay became the Principle
Member of MasterCard. This was extremely beneficial for small and middle-sized banks
that got the technological platform for the effective emission of international MasterCard
products.
 14

The most widespread among Russians are the MasterCard cards Cirrus Maestro that
are used for keeping the salary. Those cards that actually account for 80% of Russian
plastic card market8 are still going to be the main business in the sphere of plastic cards
for most of the banks. Now there are more than 120 banks – members of MasterCard
payment system in Russia.
According to the Central Bank data in the year 2007 MasterCard in Russia almost
reached the market share of Visa and together they were controlling more than 80% of the
market9. This was due to the biggest banks in Russia actively issuing plastic cards of the
international payment systems. The number of MasterCard cards in use was growing
steadily during the years 2002-200610, with debit cards leading the market. However, it
was in the number of credit cards issued where MasterCard could actually overcome Visa
since 2004 and was able to keep this position until now on.

3.2. MasterCard entry to Russia analysis

Networking approach
According to the networking approach internationalization is seen as a process in
which relationships are continuously established, developed, maintained and dissolved
with the aim of achieving the objectives of the company11. Relationships are developed
through interaction in which the parties build mutual trust and knowledge. These
relationships are connected by networks that consist of several companies including
customers, competitors, suppliers, distributors, agents, and consultants as well as
regulatory agencies.
In the plastic card business the networks that payment systems establish are
particularly important. In order to develop operations in any country the payment
processor needs to closely cooperate with banks and various merchant locations, not only
during the period of market entry, but even when the operations in the country are already
established. Before MasterCard representative office in Russia was opened in 1997 the
issuing banks and MasterCard were doing their common business via the special

8
Саидмурсалов Р. Рынок на двоих [Электронный ресурс] / Р. Саидмурсалов // «Ведомости». – 2007.
- № 61. – М.: ЗАО Бизнес Ньюс Медиа, 2009 -.- Режим доступа:
http://www.vedomosti.ru/newspaper/article.shtml?2007/04/06/123676. – Загл. с экрана.
9
See Appendix 2. Payment systems in Russia – market share
10
See Appendix 3. Growth in the number of cards in Russia, 2002-2006
11
Johanson, J., Mattson, L.G. "Internationalisation in industrial systems – a network approach" [Electronic
resource] / J. Johanson, L. G. Mattson // Strategies in Global Competition. – 1988. – JSTOR, 2009. -.-
Режим доступа: http://www.jstor.org/. – Загл. с экрана.
 15

processing company12. Banks that used this processing agent to make the MasterCard
transactions became part of a network. Therefore, each party was interested in
maintaining good relationships within the network, while MasterCard was also struggling
to get new banks and merchants to join the network.
This was the case when MasterCard was just starting its operations in Russia. Later
on banks started to withdraw from cooperating with the processing agent and established
their own processing facilities. However, it does not make any change to the importance
of networks for the MasterCard business. The company still has to interact with all the
entities within the four-party system. As the company states in its annual report: “We
operate the MasterCard Worldwide Network, which links issuers and acquirers around
the globe for transaction processing services and, through them, permits MasterCard
cardholders to use their cards at millions of merchants worldwide.”

Porter’s 5 Forces Analysis

Intensity of competitive rivalry
MasterCard is an actor in a very competitive industry. Currently, there are
numerous companies that offer payment with credit cards. However, we can say that only
three competitors are at the same competitive level of MasterCard. American Express is
the biggest player in the market (regarding its revenues). The company is not only a credit
card company; it is one of the world‟s biggest providers of financial services. Diners Club
is the smallest company of the big four. It is primarily acting in the premium and business
card segment. The biggest competitor of MasterCard is VISA. This company is not only
using a similar business model to MasterCard‟s, it is also on a similar level regarding
outlets accepting its cards.
The credit card industry itself is characterized by pretty same products that are
offered to customers. It is quite hard for actors in the industry to differentiate themselves
from their competitors. All of them offer a method of payment which is more or less
differentiated through fees, acceptance of cards and additional services for the cardholder.
The intense competition has led to the situation that most fees for cardholders are at a
pretty comparable level. For example there is no competitor trying to gain market share
through extremely low fees. This is also a result of the very saturated markets. Credit card

12
Буйлов М. Андрей Королев: "Сейчас диалога между платежными системами нет" [Электронный
ресурс] / М. Буйлов // Журнал “Деньги”. – 2007. - № 46. – М.: ЗАО «Коммерсантъ. Издательский
Дом», 1991-2009 -.- Режим доступа: http://www.kommersant.ru/doc.aspx?DocsID=828393, свободный.
– Загл. с экрана.
 16

companies are currently eagerly trying to establish their business in economies in

transition, as these countries offer high growth rates. The American and European
markets, on the other hand, offer very little growth rates and are very competitive.
Threat of entry
The threat of market entries from new companies seems to be quite small. However,
the threat of companies that are already established players in the financial services
industry entering the credit card business is quite big. Market entry barriers are pretty
high for companies that are yet not established in this industry. For instance, it is very
expensive to get access to distribution channels, which are outlets accepting the
company‟s cards. First of all, the distribution channel itself has to be set up; furthermore,
it is quite expensive and tough to attract customers, as the saturated and competitive
market has already led to very similar products and offerings. To sum up, it is almost
impossible for a new player in the market to gain a unique selling proposition. All these
points, however, do not count to companies that are already in the financial services
industry. Banks, for instance, are seen as one of the major threats for companies in the
credit card industry. They already got a channel of distribution and have existing
customers. It is indeed quite easy for them to lure customers away from credit card
companies. MasterCard and VISA reacted to this fact with their business model, with
banks as their major customers instead of cardholders.
Bargaining power of suppliers
The bargaining power of suppliers does almost not exist in the credit card industry.
Suppliers of credit card companies are usually producers of cards and companies that
provide the IT-infrastructure. Card producers are heavily relying on their customers,
vertical integration of card producers is not a realistic threat for credit card companies.
Even though that the products of credit card companies are not diversified and the costs
for change of products are quite low, it is not in the interest for the suppliers to enter the
industry. This is partly because they are dominated by credit card companies because
their industry is less concentrated, saying that emitters of credit cards are less relying on
their suppliers than vice versa.
Bargaining power of customers
The bargaining power of customers of credit card companies is not considerably
high. Understanding customers and their needs is of course very important for all players
in the market. However, the bargaining power of customers itself is not very high, as they
have a wide range of different needs. Admittedly, it is not very costly to change from one
 17

contractor to another (switching costs) but this is more than outweighed by the fact that
the offers of credit card companies are often very similar to each other (standardization of
products). The industry has reacted to the price sensitivity of customers, leading to almost
similar offers from all players in the market. Moreover, the distribution of information is
far from being perfect for customers, as there are a lot of different offerings which differ
only in small aspects from each other.
Threat of substitutions
The identification of substitutes for credit cards is not as simple as it seems to be on
the very first glance. Paying with cash is of course the most common payment method.
However, cash is distributed by the state and is therefore not a product that is in direct
competition to credit cards, according to the theory of the 5-Forces analysis. The use of
patents is not that important for credit card companies, except security features. However,
customer loyalty is probable not that high, as credit card companies hardly offer the same
feeling like well known brands like Harley-Davidson or Prada, which are able to entice
their customers through their well-known brand. Switching costs are at a very low level,
therefore increasing the possibility of customers changing from one product to another.

Bargaining power theory

Bargaining Power is exactly as it sounds. It is the abilities of one party to have
influence over another party. There are two ways that two (or more parties) can bargain.
They can either have an equal footing and neither is more dominant than the each other.
Examples of these are perfectly competitive markets and equally matched monopolies.
Or, one can have an advantage over the other party. This is usually due to influential
abilities, power, size, or status. The easiest way to avoid a single party's dominance is by
making a contract between the two parties. When this happens, if anything goes bad or if
one party is asking two much the other party can just take out the contract and say that
things are not as they are written and everything can be resolved. If there is no contract
than obviously one party's dominance can't be controlled.
There are two different types of bargaining power, bargaining power of suppliers
and bargaining power of customers. Bargaining power of suppliers is when advantages
happen because 1) there are less goods than buyers 2) a supplier's goods are unique 3) the
cost is too high to switch to another supplier. With all these advantages in mind the there
is an average supplier advantage with MasterCard and its Russian market. There are not
less goods than buyers. If you look at it, MasterCard has an infinite number of goods:
 18

their cards. They can make as many as they want, whenever they want. There are far
more 'potential' buyers that MasterCard wants. Yes, the supplier's good is unique.
MasterCard's credit card doesn't have many competitors besides Visa in the Russian
market. So if a Russian person wants to buy a credit card they have to pick between two
companies, either it is Visa or MasterCard. This is definitely an advantage. And finally,
there are not high costs for Russians to switch from MasterCard to Visa. There could be a
termination fee, but it isn't a huge amount of many. The only thing that Supplies have
over their customers is their unique brand, but regardless, this is the most important
advantage. MasterCard, because of this, has a minor advantage.
Bargaining Power of customers is when the customer have advantages because 1)
their purchases are a major portion of the supplier's sales, 2) their purchases represent a
large portion of their own costs and 3) there are too many suppliers for each good. In this
case, customers usually put huge pressure on the suppliers by demanding for better, yet
cheaper, goods. With all these advantages in mind the customers also have a bigger
average advantage over MasterCard. That MasterCard has over them. They actual are
MasterCard only profit. Without customers (such as organizations and individual card
holders) MasterCard is nothing. With this in mind, MasterCard need to advertise and
reward its customers constantly to keep them. Customers also make up their own costs.
When they buy, they must pay back MasterCard. So if the customer does more
MasterCard makes more and if the customer does less then MasterCard makes less.
Again, to keep its customers MasterCard needs to reward them if the spend enough on
goods and services. Finally, there really isn't too many suppliers for each good because
MasterCard can make and terminate as many cards as they want when ever they want.
With all this said, the customers definitely have a bigger advantage of MasterCard, and it
can be perceived as a high advantage.
From analyzing the Bargaining Power Theory, it can be inferred that MasterCard
works to help its customers and changes itself for its customers more so than its
customers change themselves for MasterCard. MasterCard's whole identity is based off of
it's card holder. They do not make products they make lines of credit. Without customers
that need these lines of credit, MasterCard disappears. They, MasterCard, cannot change
it's identity and conform to a different idea, it is strictly a company that gives people
borrowed money. Customers are the master in the Game called MasterCard.
 19

Transaction Cost Analysis

Transactions happen as the time. It is when a good or service is transferred from one
hand to another. No matter what type of transaction, there are always costs, even with free
goods and services. These costs can be search and information costs (those costs that are
incurring learning about the product, its advantages, etc.), bargaining costs (those costs
that are incurring when two bodies come to an acceptable agreement), and policy and
enforcement costs (those costs that one entity uses to make sure the other entity is
sticking to their contract). When these external transactions costs are higher than their
internal transactions cost then the company will grow. If the opposite happens, then the
company will downsize.
If we look at these three transaction costs between MasterCard and it's Russian
expansion we do not come to any surprising results, though most of these question (such
as how much did it cost to bargain with the government?) aren't available to people
outside the company. This next bit about Transaction Cost Approach is strictly based on
speculation, but well thought out speculation.
Search and information costs are costs that have to do with one company learning
about another company, product, or service. It is no big surprise that MasterCard
researched the Russian market. It is almost preposterous for a company, that is looking at
expanding, to not look into the market. These cost, however, had nothing to do with
changing the brand image. MasterCard is a global company and it does not wish to
change who it is from one location to another. These cost, more or less, were looking into
how Russians would react to them, what places to first penetrate (such as Moscow and St.
Petersburg over Vladivostok), and because Visa entered this market first, what Visa did
and if it was successful or a failure. These costs for searching and researching were
probably average. MasterCard probably stayed within the budget and what information
the expected to get the got.
Bargaining cost are costs that have to do with compromising with various
organizations. MasterCard doesn't have to deal with franchising, state run organizations
(that the government has to protect), or plants that to be built to make a product. These
are the big bargaining costs. So in theory, MasterCard really didn't have to deal with this.
They did of course need to negotiate with the government, but the Russian government
isn't against MasterCard. The only time the government really worries about foreign
entities entering into the Russian market is when the foreign entities dominate over the
Russian Companies. There are obviously none. And because MasterCard could
 20

potentially boost the Russian economy, the government was probably really welcoming to
MasterCard. With all this in mind, the bargaining cost were probably quite low.
Policy and enforcement costs are costs that are involve the enforcement of policies
etc. There most likely isn't much external policy/enforcement costs because there are no
organization that MasterCard is connected with in their Russian market entry. MasterCard
does own other organizations such as Maestro and Cirrus but both of those companies are
partnerships with other European organizations not present in Russia. If they need to
enforce anything is has to be their customers that use MasterCard services such as
organizations and individual card holders. They also might have to enforce policies with
the government. All in all, these costs are fairly low compared to other organizations such
as Knauf and Catepiller who are in the Russian market. These organizations had to form
joint ventures are partake in FDI, and because if this have a lot of contracts they need to
keep up with. With all that said, MasterCard's policy and enforcement costs are quite low.
From all this, it can be concluded that MasterCard has very little external
transaction costs in there penetration into the Russian market. It can also be concluded
that because there external costs are so low, that they are expanding and not downsizing.

Behavioral approach
The experience of MasterCard is long lasting, so their knowledge for subscribing
cards, develop payment strategies and supporting costumers with technical standards and
service is very well developed. In behavior, the know how is to handle with their
customers. The experiences they made during the years are multisided. There were some
financial crises, the golden 50‟s years of stock market growing, inflations, depressions
and years of making money. All these times were managed by the MasterCard Company,
so they seem to be very well prepared for the future. These experiences indicate that they
have a very good risk management. I.e. for cheating card data they developed new
technology and have every time experts which care about costumer problems13. Every
year the cheating of card data makes about 10 bill. Dollar. It is paid partly by encashment
companies and partly by some insurance for finance companies14.

13
Risikomanagement [Electronic resource] – Oct 2009. – GTS Online Limited, 2007-2009 -.- Режим
доступа: http://www.g2s.com/de/risk-management.mhtml, свободный – Загл. с экрана.
14
Vergleich Inkassounternehmen und anwaltliches Inkasso [Electronic resource] – Oct 2009. –
Finanztip.de, 1999 -.- Режим доступа: http://www.finanztip.de/recht/wirtschaftsrecht/verglanwink.htm,
свободный – Загл. с экрана.
 21

The culture of the MasterCard Company is their outcome and so their payoff. It
keeps the stakeholders in its company and the company is working for its stakeholders. It
is as well important as to fit into the culture there are going to. The best example for this
is Russia. The culture until now was to pay in most cases bar. But the culture is going to
change like the whole country is in a change. MasterCard is going to change the mentality
and Russia is going to change MasterCard15.
All in all MasterCard keeps it control about the company but have to fit into the
environment they are going to. The consequent involvement into other cultures and the
showing of advantages in using cards makes MasterCard to one of the leading cards all
over the world.

Strategic approach
Strategic goals, that‟s the key for competence. In competition with MasterCard,
Visa is the biggest opponent. Other opponents are PayPal and American express. All
these have to come along with the same situations. Today it is possible to pay with
MasterCard in 210 countries and more than 35 mill. Points. This brings MasterCard in a
leading position to its competitors. MasterCard is one of the most attractive paying
systems and a market without MasterCard seems to be unbelievable. In going abroad and
going into Russia MasterCard show it‟s dynamic in adapting to other markets. The
orientation, which is all over the world, makes MasterCard world leading. For
MasterCard it is possible to leave each market and quit the work there. But this is just
theory, because if they do so, they will go into bankruptcy. Some contracts they signed to
support some institutes or to support private households inhibit them to leave some
markets. The commitment they made keeps them on the markets16. MasterCard offers a
lot of programs all over the world. The Debitkarten Maestro (especially in Europe), Debit
MasterCard/MasterMoney (only in the USA), the MasterCard electronic (especially
eastern Europe and Asia) and Cirrus. (just for getting money from an ATM). For
payments in the Internet they have the MasterCard SecureCode. As well they offer
services like blocking cards for gambling and prepaids for grownups.

15
Unternehmenskultur als Treiber für den Unternehmenserfolg [Electronic resource] – Mar 2007. – №2.-
KMU-Magazin, 2009 -.- Режим доступа: http://www.wissen.org/a/images/stories/wissen-org/docs/kmu-
magazin2007-02kultur1.pdf; свободный – Загл. с экрана.
16
Bedingungen für die MasterCard [Electronic resource] – Apr 2004. – Bankschilling, 2009 -.- Режим
доступа: http://www.bankschilling.de/content/pdf/10.42_bed_MasterCard.pdf, свободный – Загл. с
экрана.
 22

Dunning’s OLI (-MA) theory

The OLI framework, developed by J. Dunning, contains three deterministic sets of
variables: ownership, location, and internalization advantages. Ownership advantages are
to be found within the firm and are the ones that differentiate a firm from its competitors.
For the financial cards industry, the ownership advantages may include private
information on the cardholders, innovative operational technologies, better management
skills and global brand recognition. MasterCard invests a lot into the marketing of its
brand all over the world and has built a powerful image of convenient and secure
payment processor. Thus, when the company was entering Russia, it could exploit the
above mentioned advantages. The expertise of MasterCard in promotion of payments
with cards helped the company to increase significantly the amount of plastic cards
owners among Russian population.
The location advantage is arising from the fact that different locations have
different resources, institutions, and level of development. MasterCard decision to enter
Russia was based on the fact that the country was a fast growing emerging market with
over 17 mln. population, were people were not used to making payments with plastic
cards. Even now, after more than 10 years on the market, MasterCard still has about 90%
of Russia‟s citizens as potential customers17, because they are not using plastic cards in
their everyday life.
The internationalization advantage is the third and the most complex factor, because
it explains why the firm should be offering a service in the foreign location itself, but not
with licensing or franchising. At the times when MasterCard was entering Russia, the
country was a very attractive market, where the infrastructure was steadily developing
and the consumer expenditure was rising. Therefore, MasterCard‟s goal was to capture
the opportunity to gain the biggest market share in order to successfully compete with
VISA. In this case it is important to get a foothold on the market, which is possibly only
with FDI strategy.
All in all, considering the OLI framework, global payment processors look for
increased profits through geographic expansion by employing ownership advantages
(their existing networks, technologies and brands) to leverage location-specific advantage

17
V. Volkov. A Long Story [Electronic resource] / Received by e-mail from MasterCard Russia
representative.
 23

such as closer relationships with clients, and the opportunity to capture internalization
advantages such as attainment of global economies of scale.
Considering a more extended version of the OLI paradigm – OLMA, where the
Mode of entry and Adaptation factors are added, we can still explain the MasterCard‟s
internationalization process in Russia. As far as the mode of entry has already been
discussed in the internationalization part, the adaptation of processes to the Russian
business environment is a real challenge for any company, entering Russia, and for
MasterCard as well. The legal and tax systems in the country, government restrictions and
income profile of consumers are very complex and unstable, which forces companies to
be extremely cautious in the choice of adequate investment strategy. As for the cultural
differences in using plastic cards between Russia and the rest of the world, we will be
exploring them later in the paper.

3. Russian perception of MasterCard

3.1. Before the crisis
Since the launch of MasterCard in Russia, the Maestro brand of debit cards became
one of the most widely spread in Russia. Until the times when the economic crisis struck
there was a stable growth in the number of cards issued with MasterCard logo. The rate of
growth of the plastic cards emission in Russia was higher than in the other Eastern
European countries. By the year 2007 half of the MasterCard cards issued in Russia were
credit cards, most of them being issued in 2 largest Russian cities18. However, the volume
of bank loans in the regions was increasing, therefore there was a great potential for the
use of plastic cards in the other parts of Russia.
MasterCard strategy in Russia focused on understanding the needs of the consumers
and offering them the types of products that would be particularly useful for them. The
company tried to make plastic cards available to anyone and ensure people would be
using those cards in their everyday life. The advertising campaign, launched by
MasterCard in year 2005, was aimed at educating people in Russia about all the
opportunities that plastic cards offer. For the first time in the MasterCard history the TV

18
Буйлов М. Андрей Королев: "Сейчас диалога между платежными системами нет" [Электронный
ресурс] / М. Буйлов // Журнал “Деньги”. – 2007. - № 46. – М.: ЗАО «Коммерсантъ. Издательский
Дом», 1991-2009 -.- Режим доступа: http://www.kommersant.ru/doc.aspx?DocsID=828393, свободный.
– Загл. с экрана.
 24

commercial was made locally, in Russia, therefore it included some aspects of Russian
reality. The results of such actions appeared to be beneficial for the company.
According to the survey of the IMCA Company, conducted in 2006 in Moscow and
St. Petersburg among people with the income above average, the aided recall of
MasterCard brand reached the number of 95%, with recognition being 72%19. Almost half
of those surveyed unintentionally associated the plot of the “Priceless” advertisement
with the MasterCard brand. This clearly shows that MasterCard commercial was
appreciated and remembered by the customers.
Many Russians consider MasterCard being a very comfortable card to use. People
mentioned a wide network of places, where the cards are accepted, the simple procedure
of paying with the card and the tendency to take MasterCard when travelling abroad. Also
people noted that MasterCard is a very secure way of keeping their money. 44% of people
were ready to start using MasterCard due to the positive experience of their friends and
38% were willing to advise MasterCard to their friends20.
All in all, at that time the MasterCard division in Russia was growing fast and got
more financing from MasterCard Europe than any other country in Eastern Europe.

3.2. After the crisis

Nowadays, the situation has changed. During the crisis, people start thinking about
how to minimize their expenses rather than getting a new credit card. In the end of 2008
the amount of purchases made by plastic cards decreased by 65,7% 21. Now banks again
started to focus on the emission of debit cards as opposed to what they did before the
crisis.
It has been several years in Russia since most of the companies started to pay the
salaries to their employees with the help of plastic cards. Nevertheless, many people in
the country still use their cards only to get cash in the ATM machines. The part of middle
class Russian population that was only getting used to making purchases with plastic

19
Хозяин в доме - бесценно. Про успех стратегии MasterCard в России [Электронный ресурс] /
AdMe.ru. – 2005. – 23 декабря. – М.: AdMe.ru, 2009 -.- Режим доступа:
http://www.adme.ru/adnews/2005/12/23/4782/, свободный. – Загл. с экрана.
20
Маркетинговая кампания MasterCard в России [Электронный ресурс] / McCann Erickson Worldwide
Russia. – 2005. – 23 декабря. – М.: "РИП-холдинг", 1999 -.- Режим доступа:
http://www.advertology.ru/article22506.htm, свободный. – Загл. с экрана.
21
Пашутинская Е. "Мы давно занимаемся борьбой с наличностью" [Электронный ресурс] / Е.
Пашутинская // Газета “Коммерсантъ”. – 2009. - № 77. – М.: ЗАО «Коммерсантъ. Издательский
Дом», 1991-2009 -.- Режим доступа: http://www.kommersant.ru/doc.aspx?DocsID=828393, свободный.
– Загл. с экрана.
 25

cards, under the influence of all the promotions developed by both VISA and MasterCard,
had to return to its ordinary way of life because of the economic crisis.
Meanwhile, this helped to reveal that MasterCard in Russia is perceived to be more
of a premium card. The company itself clearly understands its image. For example, during
the crisis MasterCard launched the loyalty program for the premium users, unlike its
competitors promoting social or co-branded plastic cards. Moreover, by changing its tariff
system in Russia, MasterCard became a more expensive card for taking cash in the
ATMs, while being cheaper for making purchases in the merchant locations. However, it
might take long time before Russian middle class citizens will again start decreasing the
amount of cash they use. Therefore, those changes in tariffs are aimed to stimulate
premium card users that are used to go shopping with their cards.

3.3. Use of MasterCard in general

Many Russian people tend to think that MasterCard is more widely used in Europe,
so only those, who frequently travel to different European locations start thinking about
getting a MasterCard plastic card. Furthermore, people in Russia are still not used to
having several plastic cards, because they do not use them as often as their overseas
counterparts. Only 12% of Russian plastic card users have more than 2 cards, while 2%
have more than 3 cards. Considering the fact that most of the cards, used for keeping
people‟s salaries, are those of VISA payment system, middle class Russian people are not
at all interested in having an additional MasterCard plastic card.
Another problem is that Russian middle class consumers usually buy products in
discount stores, where there is no infrastructure for paying with cards. Therefore after
getting their salary on the plastic card, they tend to withdraw all the money and convert it
into cash. In the Russian people‟s minds this contradicts the urge of MasterCard to be
used for their everyday shopping. Hereby, the image of MasterCard becomes familiar
only to those Russian citizens that can afford making purchases in hypermarkets and
mega-malls.
What is more, the MasterCard “Priceless” advertisement initially used to show
people buying some expensive things with MasterCard, which cost more than 10 to
15 000 rubles. Considering the fact that for many Russians this amount equals to their
monthly salary, they cannot associate themselves with MasterCard users.
 26

All in all, the perception of MasterCard in Russia as a more premium brand

compared to VISA comes from the fact that VISA is more widely spread among Russian
citizens, while MasterCard is being considered a rather rare type of card. And what is
typical for Russian mentality – if something is rare, it is certainly expensive and not
available for everyone.

3.4. Survey findings

In order to get a better understanding of the perception of MasterCard among
Russian people we conducted a short 6-question survey22. Surprisingly, the survey
revealed some interesting results.
From the very beginning it should be mentioned that people who participated in the
survey are mostly the citizens of Moscow, aged 25-45, with the income level above
average. We did not ask our fellow students to participate in the survey, because
according to the current strategy of MasterCard in Russia they are not considered to be
their target audience.
54% of those surveyed believe that MasterCard business is about being a substitute
for cash, while only 24% know that it is actually a payment processing system.
Meanwhile, 20% consider MasterCard to be a financial provider. The majority of people
appreciate MasterCard for its convenience, one forth for the flexibility and only 4% for
the security. As for the benefits, that people get when using MasterCard, 26% answered
that there are no benefits for the cardholder and there are some only for the banks.
When compared to Visa, 42% of those surveyed see no difference between the two
systems, 28% believe it is all about the quality of service and the way it handles situations
to help its customers, while 18% noted the price difference. All in all, over 80% of survey
participants see themselves using MasterCard in the future.
This surveyed helped us to figure out that people in the western part Russia are quite
positive about using MasterCard in their everyday life, however, most of them don‟t
understand the security aspect in the use of plastic cards. Moreover, many people don‟t
see the difference between the two biggest players on the market, which reveals that both
the payment systems failed to develop their own image that could give them a
competitive advantage.

22
See Appendix 4. for the sample questionnaire.
 27

4. Cultural differences in use of Cards

Internet (e-commerce)
Men between 30 an 39 years state the biggest experiences for consumption in using
cards. Furthermore belongs to the group, which uses e-cards persons with a higher
education, self-employed persons, executives and employees. The group of persons,
which is about 50 years, is more cautious in using e-cards. One of the reasons for this is
the less use of internet in this age. This is instantaneous related to the network structure of
the internet, which still captures the younger target group in a superior way while the
older target group stays underrepresented. But the generation of internet users between 14
and 19 years exhibits because of lack of configuration a low use of cards. But the newer
trend is more likely to show that the older generation catches up in this trend and gets
accessible for this trend23.
According to Sinus-Milieus is the internet used to “modern” and “high”
environments. The more conservatively one environment is settled and the lower the layer
classification is, the more slightly is the spreading of the Internet. In the traditional-rooted
environment or the conservative environment the Internet is not at all presented.
As a forerunner of the Internet use are valid the modern Performer, to postal-
material and experimentalists. The online use and the consequently use of e-commerce
depends on environment24.
In Europe books and CDs belongs to the most ordered goods in e-commerce. Also
the selling of more expensive goods over internet increases, i.e. holiday travelling and
luxury goods.
It seems that the first big shyness in using the e-card and using the internet are
related to each other. The Skepticisms of European buyers bit by bit are diminished (is
more and more) and decreasing more and more of course the personal purchase habits of
the people are integrated.
The main problem for most consumer and customer is the security. In Percent 73%
stated they are afraid to pass their personal data via internet down to so. But in developing
of the years the skepticism is decreasing not least because of the developing positive
experiences of using e-cards25.

23
Rogers E. Communication Technology / E. Rogers. – US: The New Media in Society, 1986.
24
Hradil S. Alte Begriffe und neue Strukturen - Die Milieu-, Subkultur- und Lebensstilforschung der 80er
Jahre / S. Hradil. - Vaskovics, L. (Hrsg.): Subkulturen und Subkulturkonzepte, Opladen, 1990.
25
Schenk M., Wolf M. Nutzung und Akzeptanz von E-Commerce / M. Schenk, M. Wolf. – E-Commerce
und die Bürger, Stuttgart, 2000.
 28

Europe in and the USA are the most developed countries in using e-cards. Income
of the B2C e-commerce supplier in Europe in 2001 between 18.7 bill. EUR (IP
Internationally Key Facts) and 19.7 bill. EUR (eMarketer). In comparison with the USA
there lies the sum, which investigates for the same period more than twice as high,
namely 40.8 bill. EUR26.
Especially in Germany raises the development of the internet market like Ebay the
use of credit cards. These ways of selling goods is getting more and more popular all over
the world.
The development in Russia for using the internet and by goods there is the second
fasts in the world (number one is China). Nowadays the dealings via the internet are
around 1.5 bills. EUR and growing27.

Free movement of goods

The picture, which is stated for the free movement of goods, is not much different in
development. Russia is one of the fasts growing markets in the world (next to China). The
turnover with visa maps in trade and in service companies grew in the same period about
61 % in 4.5 bill. EUR. The total number of the transactions with visa maps amounted
during the first nine months of the year to just 502 bill. This is about 57 % more than in
January. In September 2005 86.3 million transactions (a plus of 78 percent) were
cancelled to trade and the service area28.
But a lot of people are afraid in using e-cards. The number of misusage is high, so
that there were cases, where people trust in the companies and paid with their credit card
and then the company took all facts and misused the credit card in the internet. Often the
owner of the credit card recognizes it very late or too late. So some people lost a lot of
money. Now, the banks developed systems to prevent fraudulent use with creating a user
profiles for every consumer.
E-cards are the modern trends of the modern society.

26
Schmidt I., Döbler Th. E-Commerce: A Platform for Integrated Marketing / I. Schmidt, Th. Döbler, M.
Schenk. - Münster & New Brunswick & London, 2000.
27
Russlands Internetwirtschaft wächst weiter zweistellig [Electronic resource] – Apr 2009. – Germany
Trade and Invest, 2009 -.- Режим доступа: http://www.gtai.de/fdb-SE,MKT200904278011,Google.html,
свободный – Загл. с экрана.
28
Kreditkartenumsatz in Russland am wachsen [Electronic resource] – 6 Dec 2006. – Der LeuMund.ch,
2009 -.- Режим доступа: http://leumund.ch/kreditkartenumsatz-in-russland-am-wachsen-00956,
свободный – Загл. с экрана.
 29

E-Cards future in Russia

In Russia true credit cards boom are expected during the following years. Quite in
the medium term is to be calculated on “hundred thousands to millions”. The
Raiffeisenbank has begun last year with emitting and holds with 30,000 credit card
owners currently29.
“American Way of Live” released the real estate crisis and makes clear that this life
style is not necessarily advantageous and is built on sand. The lacking paying habits of
the Americans leave the back property with MasterCard & Co. on 900 bill. EUR in the
meantime rise. Experts already warn since weeks about the next big bubble. In the USA
the loan institutes estimate up to 50% of interest. Then there it is no miracle that it too
many US citizens hard falls the accumulated debts to pay off. This affects the whole
financial world and will breed a new crisis, a credit card crisis30.

Varieties in the world

The differences of using e-cards are related to the disparities in the level of
development of the country. The access to the internet is a main factor. Related to this is
the demand and supply of e-cards.
For students and younger people credit cards mean the freedom to get money or to
pay all over the world. It is getting more and more popular, studying abroad and this is
also a factor for students and younger people to get e-cards.
For some people it is difficult to deal with the payoff of credit cards, because it is
only one time at the end of the month and sometimes they lose the control and buy things
without having the money - credit institutes give often to high limits for the credit cards
and so much households get bankrupt, which is a problem all over the world.
In changing of the society there will be and is also a changing of payments 31.

29
Kreditkarten-Boom in Russland erwartet [Electronic resource] – 20 Apr 2007. – Cardscout., 2004 -.-
Режим доступа: http://www.cardscout.de/business/Russland-Kreditkarten-Boom-in-Russland-
erwartet_205668.html, свободный – Загл. с экрана.
30
MasterCard globales Geldautomatenverzeichnis [Electronic resource] – US, MasterCard, 1994-2009 -.-
Режим доступа:
http://www.MasterCard.com/de/personal/de/privatkunden/unsereservices/geldautomatensuche/index.html#,
свободный – Загл. с экрана.
31
Wege zu mehr Konsumentlnnenvertrauen in den E-Commerce [Electronic resource] – Osterreichiscge
Akademie der Wissenschaften, 2004 -.- Режим доступа:
http://www.oeaw.ac.at/ita/ebene5/WPecommercevertrauen.pdf, свободный – Загл. с экрана.
 30

5. Future outlook for MasterCard in Russia

Although MasterCard is doing quite well in there penetration into the Russian
market, there are still a few things that MasterCard can improve on. These improvements
include expanding the usage of MasterCard in Russian cities, making MasterCard more
for the ordinary person, expanding regionally and finally redesigning its website.
Russians tend to use MasterCard only to withdraw money from the ATM. This
almost defeats the purpose of the credit card. The first step in this form of expansion is to
get more companies to accept credit cards. Most businesses just accept cash in Russia. As
soon as these businesses start accepting cards, and more specifically MasterCard, then the
usage will go up instantaneously. This is most important for MasterCard because when
Russians withdraw money from ATMs they know how much they are withdrawing.
When paying for items in say a shopping market the card holder does not pay attention to
how much they have spent. This means that the card holder will spend more money and
in return will increase MasterCard‟s revenue.
Another problem that MasterCard has is its image. Most Russians believe that
MasterCard is for the rich person. This can be seen mostly through its advertisements.
When MasterCard names off prices of item, the prices are outrageous. Most Russian will
not pay for (nor be able to afford) sun glasses for 20,000 rubles. MasterCard needs to
downgrade itself to the average person. They should first do this by changing their
commercials to lower class people. If the same sun glasses is said to be 500 rubles, more
Russians will feel more inclined to start an account with MasterCard.
As of right now, there are twice as many Visa Credit Cards on the market just for
this reason. Visa‟s image is based off of the ordinary person. MasterCard‟s presence in
the Russian market is completely towered by Visa. They need to change their image to
even start to think about competing in this market.
More over MasterCard should change its advertisements in different regions of
Russia. In Moscow, where Russians are richer, these advertisements of 20,000 ruble
sunglasses can stay the same. In smaller less rich areas in Russia, the advertisements can
have cheaper products. Other, common people towns welcome MasterCard.
Expanding is a very hard thing to look at in the area of Russia when it comes to
MasterCard. It is a scary thing wanting to expand into more remote areas in Russia. The
profits can go two ways; they can increase or dramatically decrease. MasterCard should
try to expand but in cities/areas with over one million people. This lessens the chances of
 31

a decline in revenue because there is bound to be people willing to buy and use
MasterCard. As for smaller cities, MasterCard should not expand there yet. It is best to
make Russians in Moscow and St. Petersburg more accustomed to MasterCard and has
them push MasterCard into more remote areas instead of MasterCard pushing itself into
those remote areas.
Finally the website needs some maintenance. The „about me‟ section on
MasterCard‟s corporate website is only in English. When a Russian, who speaks only
Russian, wants to know about MasterCard they cannot. As soon as the Russian, who is on
the Russian MasterCard site, clicks on „about me‟ they are redirected to the English
„about me‟ page. It almost makes MasterCard seem like a conceded company for not
conforming to the Russian language. To get more potential clients, MasterCard needs to
translate all of their pages into Russian.
 32

Conclusion
In this paper we tried to provide an analysis of the internationalization strategy of
MasterCard in Russia. Although the company started its operations in Russia about ten
years ago, it has managed to gain a considerable share in the market. However, it still
cannot get ahead of its main competitor – the Visa Company.
The Russian market is very prospective in terms of plastic cards because most of the
Russian population still does not use them in their everyday life; however, this becomes a
real challenge for MasterCard. While operating in Russia, the company has to not only
deal with all the competition and regulations, but also has to develop the so called culture
of electronic payments. These are two very different problem, but as the same time, two
issues that need to be addressed and solved for MasterCard to have success in Russia. The
competitors have a great share in the Russian market as well and this cultural will help
MasterCard triumph over them.
Nevertheless, there are still many options the MasterCard Company can implement.
The growth potential of the Russian financial cards market lies in offering the population
a wider range of services and creating convenient solutions for their usage. Moreover, if
MasterCard wants to increase its share, it needs to develop an image of a more affordable
payment solution for all groups of customers, regardless of their income or way of life.
This has been something that the Visa Company has been able to understand and
implement much better (and faster) that MasterCard has.
Regardless of the problems and concerns, MasterCard has made quite an impact in
the Russian market. It wasn‟t even 10 years ago that most Russians didn‟t even know
what credit cards did. It cannot be said for certain if MasterCard will ever out do its main
competitor or address their main problems, but it can be said that their potential is just
outstand. Just make sure to remember that «for everything else there is MasterCard.”
 33

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 34

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 35

Appendices

Appendix 1. The “four-party” payment system

Source: MasterCard Annual Report [Electronic resource] – 2008. – US, MasterCard,

1994-2009 -.- Режим доступа:
http://investorrelations.MasterCardintl.com/phoenix.zhtml?c=148835&p=irol-
reportsannual, свободный – p. 6.
 36

Appendix 2. Payment systems in Russia – market share

2% Share of the market, 2007

3%
3%
4%
Visa
6%
MasterCard
43% "Zolotaya Korona"
"Sberkarta"
STB
"Union Card"
39% Others

Source: Саидмурсалов Р. Рынок на двоих [Электронный ресурс] / Р. Саидмурсалов

// «Ведомости». – 2007. - № 61. – М.: ЗАО Бизнес Ньюс Медиа, 2009 -.- Режим
доступа: http://www.vedomosti.ru/newspaper/article.shtml?2007/04/06/123676. – Загл. с
экрана.

Appendix 3. Growth in the number of cards in Russia, 2002-2006

Number of plastic cards in use, 000' cards

35000

30000
25000

20000 MasterCard in use

15000 Visa cards in use

10000
5000

0
2002 2003 2004 2005 2006

Source: Financial Cards – Russia [Electronic resource] – March 2008. – US, Euromonitor
International, 2009 -.- Режим доступа: http://www.portal.euromonitor.com. – p. 16.
 37

Appendix 4. MasterCard survey questionnaire

MasterCard Survey
1. Have you used MasterCard before?
Yes
No

2. What do you think MasterCard is?

A financial provider
A substitute for cash
A line of credit
A payment system/processor

3. Why do you think people use MasterCard? (check all that apply)
Its flexibility
Its control
Its convenience
Its security
Its rewards

4. Do you think one benefits or is hurt from using MasterCard?

Yes
No
Why?__________________________________________________

5. What do you think the difference between MasterCard and Visa is?
Nothing
Advertisement
Price of usage
The way it provides financial help
The way it handles situations to help its customers

6. Do you see yourself using MasterCard in the future?

Yes
No
Why?__________________________________________________