How Does Mastercard Make Money? Business Model of Mastercard

How Does Mastercard Make Money

Mastercard is a popular electronic payment processor that is used by individuals and institutions throughout the world.

Mastercard primarily makes money via interchange fees. It also makes money from domestic assessments, cross-border volume fees, and other fees.

Founded in 1966 by a collective of banks, Mastercard’s development was inspired by Bank of America’s credit card. It all started when Karl H. Hinke, the executive vice president of Marine Midland Bank, requested a meeting with the representatives of several other banks.

Bank of America refused to provide Marine Midland with a regional license for their credit card. Hence, a collective known as the Interbank Card Association was born, which attracted 150 members within its first year.[1] And in 1979, the collective was renamed Mastercard.

What Is Mastercard & How Does It Work?

Mastercard is an electronic payment processor that facilitates transactions in 150 currencies across 210 countries and territories. According to a 2020 report, Mastercard is accepted by 37 million merchants around the world.[2] This figure includes both physical and online businesses.

It also includes payments made via debit, credit, and prepaid cards. Mastercard itself doesn’t provide cards or credit. Instead, it connects banks with the transaction network that acts as an information highway for all the data processed during each electronic transfer.

Banks provide rewards and other incentives to their customers, based on the card tier. Mastercard is responsible for making sure that payments transfer from the customer’s bank account to the merchant’s bank account. They do this on a core network that authorizes, clears, and settles each payment in real-time.

Mastercard’s systems work 24 hours a day, 365 days a year. The payment experience is designed to be quick, safe, and consistent irrespective of the amount being transferred. In 2020 alone, Mastercard processed 113 billion transactions around the globe.[3]

According to a Q1 2022 report, Mastercard had nearly 2.9 billion cards in circulation around the world.[4] This includes credit, debit, and prepaid cards. Mastercard doesn’t just offer its services to individuals but also offers different forms of credit services to businesses, banks, and government institutions around the world.

Through its infrastructure, Mastercard can process automatic clearing house (ACH) batch transfers. This allows businesses to clear payments in real-time with the capability for international fund transfers. Mastercard also has a multi-layered security system that is accessed by third parties and constantly improved with feedback from consultants.

A 2021 survey found that most customers like to use their debit cards in stores and credit cards while making online payments.[5] Cash was the third most popular payment option, trailed by finance services such as PayPal and Apple Pay. Among credit card processors, Visa enjoys the largest market share, followed by Mastercard.

Functionally, Visa and Mastercard offer the same services. Generally, an outlet that accepts Visa also accepts Mastercard. Hence, customers usually make their choice based on the rewards and cashback bonuses paid out by banks. The convenience of swiping a card to pay within seconds makes electronic payment preferable to cash for many.


Business Model of Mastercard

Mastercard follows a business-to-business model by facilitating the transfer of funds between financial institutions. Since Mastercard itself does not lend credit or provide liquidity, the company doesn’t have to worry about loans and interest rates. It has an established framework that turns out more revenue with each passing year as the number of people making electronic payments increases.

The company makes its money from interchange fees that are charged to the merchant every time they receive a payment through Mastercard. This interchange fee is then split between Mastercard and the bank that provided the card. Banks provide rewards and kickbacks from their share of the interchange fee.

Because of how its infrastructure is set up, Mastercard and similar payment providers have very high profit margins. In 2021, Mastercard had a profit margin of 46%.[6] For reference, Target made a net income of $6.9 billion on a total revenue of $106 billion in 2021.[7] That amounts to a 6.5% profit margin, which is above average for many such big box retailers.

Mastercard generates money on every transaction made through its network. Unlike a retailer, Mastercard doesn’t have to spend money on acquiring and organizing inventory. Nor does it have to set up physical locations for users to access its services. Mastercard also doesn’t need to spend much money on advertising relative to how popular it is. Many of its business partners advertise on the company’s behalf when touting their branded Mastercard options.

Banks, financial institutions, merchants, and even governments use Mastercard for a major portion of their transactions. Mastercard iterates upon its existing technology and invests in additional computing power. The returns on their investment are massive simply because of how many people use the service on a daily basis around the world.

Electronic monetary transactions are a necessary service, and there isn’t much competition in this sector. Mastercard is the second largest of just four major card networks in the United States. The other three are Visa, Discover, and American Express.

Mastercard is accepted by nearly every merchant that accepts credit and debit cards. And merchants themselves often use Mastercard to pay for the acquisition of goods. Mastercard is used by every major demographic around the world.

A 2018 survey showed that 40.36% of Americans between 18 to 29 years of age used Mastercard cards.[8] They claimed to have used Mastercard credit cards for purchases made in the last three months. This shows that Mastercard is quite popular with the young adult demographic.

This group tends to make small, but frequent purchases both in-store and online. By using credit cards more often, they are able to generate more cashback and rewards offered by their banks. These users will then feel more confident increasing their credit card usage over time, which generates sustained revenue for Mastercard.

Over time, Mastercard has transitioned from being just a payment provider to a technology and consultancy service. These additional services are still centered around commerce, but they benefit from the vast archive of data that Mastercard maintains. Mastercard has made significant achievements in the field of cybersecurity, document proofing, biometrics, market insights, and analytics.

By sharing its expertise in the aforementioned fields with merchant institutions, Mastercard creates a safer and more sustainable electronic payment future for everyone involved. The company also facilitates dispute resolution for the issuing and receiving parties in all the transactions it processes.

It facilitates the development of products that allow consumers to pay for their favorite goods and services in the most convenient manner.

Currently, Mastercard’s business model focuses on in-store payments as one of the main sources of customer fulfillment. This is because a lot of electronic transactions take place through big box retailers such as Target. In 2021, Target made over 81% of its revenue through in-store purchases.[9]

Mastercard’s biggest rival is Visa, as they offer similar services. Visa is currently more popular, both in the United States and around the world. Mastercard and Visa aren’t competitors in the traditional sense, as they offer nearly identical services.

On top of that, nearly every merchant that accepts Visa also accepts Mastercard. And many customers have cards from both Visa and Mastercard. Visa cards generally have better benefits compared to Mastercard.

However, these benefits are allocated by the issuer and not the payment processor network. Mastercard and Visa collaborate with financial institutions to create better offers and value for customers. But the bank is liable to uphold all promised rewards.

Both Visa and Mastercard follow a three-tiered card system with basic, intermediate, and premium membership offered through banks. Stores must accept all three tiers of cards and aren’t allowed to change prices based on the type of card even though they pay greater interchange fees for the premium cards.

Discover is also a competitor, but it holds just 8.1% of the market share compared to Mastercard’s 31.6%. American Express comes in at the fourth position, with a 7.5% market share.[10] These numbers are for credit cards, but they also reflect the general popularity of each brand.

Mastercard has a few non-credit card competitors that could impact the future of its revenue model. Fintech payment companies like PayPal have captured a share of online payments that might have otherwise been processed via credit cards.

Apple Pay is another credit card alternative, but it can also work with credit cards, so it is less of a threat. There are also cryptocurrency cards gaining in popularity that allow individuals to make purchases using crypto in stores. Buy now, pay later funding options like Affirm advertise themselves as credit card alternatives as they allow people to buy items now without immediately paying for them but outside of traditional credit vehicles.

How much any of these alternative payment methods are likely to disrupt Mastercard’s business model is yet to be seen. However, what they point to is an appetite for alternative financial and credit products – especially among younger demographics. That could impact Mastercard’s revenue model in the future.

Mastercard has significant operating costs. These include hosting, research and development, staffing, and general administrative costs. In 2021, the company spent $8.8 billion on operating expenses.[11]

Most of the operating expenses were from general and administrative costs, which amounted to $7 billion. Advertising and marketing constituted $895 million. Depreciation and amortization made up another $726 million.[12]


How Does Mastercard Make Money?

Mastercard makes money from four different revenue streams. These include domestic assessments, cross-border volume fees, transaction processing, and other fees.

In 2021, Mastercard earned $18.8 billion in total revenue. Of this, transaction fees made up the largest amount generating $10.8 billion. Domestic assessments were the next biggest revenue generator at $8.1 billion.[13]

Other fees brought in $4.6 billion. And cross-border volume fees constituted $4.6 billion. Mastercard consolidates the revenue from its consulting fees, cardholder service fees, and anti-fraud protection services into one category called ‘Other fees.’[14]


Transaction Processing

Whenever a user places an order or pays for a service, Mastercard collects a switching fee for processing this transaction. This fee is calculated every time the user receives approval to transfer funds. Clearing and settlement of funds also carry a small fee.

Finally, there are further switch and connectivity fees. These are charged to issuers and acquirers of the card for using Mastercard’s network and equipment.

Transaction fees are the largest source of revenue for Mastercard. They constituted $10.8 billion, or 57.4% of its total revenue in 2021.[15]


Domestic Assessments

This is the money that Mastercard charges banks for the privilege of using its network. Domestic assessments are based on the volume of activity. In 2021, domestic assessments made up the second largest source of revenue for Mastercard with $8.1 billion.[16]

These fees only apply to transactions in which the merchant and cardholder are within the same country. Extra assessment fees can be charged depending on the number of cards issued by a bank to a customer.


Other Fees

Whenever a financial institution uses Mastercard’s anti-fraud services or consultancy for things like market analytics, it pays a fee. Other fees also include maintenance-related charges. These include things like insurance and assistance with lost cards.

In 2021, the company made $6.2 billion from this revenue stream.[17]


Cross-Border Volume Fees

Whenever the merchant and cardholder are in different countries, Mastercard will charge an international transaction fee. This is a relatively small portion of its revenue at 24.4%. But the amount is still quite significant as it generated $4.6 billion in 2021.[18]


Mastercard Funding, Valuation & Revenue

Mastercard Incorporated (MA) is currently a public company trading on the New York Stock Exchange (NYSE). The company launched its IPO in 2006 at a price of $39 per share for a valuation of $2.4 billion.[19] As of September 2022, the company’s stock traded for just over $315 at a valuation of $304.5 billion.

Mastercard hasn’t gone through any public funding rounds. This is likely because the company was originally funded by banks. Mastercard also generates a significant amount of money and has not needed additional capital.

In fact, Mastercard uses some of its extra capital to acquire companies. Between 2019 and 2021, Mastercard acquired 27 companies. Notable acquisitions include Dynamic Yield, Arcus Financial Intelligence, SessionM, and CipherTrace.[20]

Mastercard has been profitable for a long time. In 2021, the company generated $18.8 billion in revenue. It also made a net income of $8.6 billion — which is a 34.3% increase over the $6.4 billion it made in 2020.[21]

YearTotal RevenueNet Income
2019$16.8 billion$8.1 billion
2020$15.3 billion$6.4 billion
2021$18.8 billion$8.6 billion


Is Mastercard Profitable?

Mastercard is very profitable. The company has profit margins in excess of 40%. That translated into $18.8 billion in total revenue in 2021 and a net income of $8.6 billion.[22]

Mastercard is likely to stay profitable in the future as the number of online transactions keeps growing. With it, the number of people using credit and debit cards will also grow.

However, Mastercard could lose market share in the future if it does not also innovate on its payments technology and portfolio. Increasingly, fintech companies offering alternative payment options like PayPal, Affirm, and Apple Pay are increasing their market share.



Mastercard is a business that’s been around for decades, and it’s still going strong. The company has adapted to the changing landscape of payments, and it’s poised to continue growing in the future.

Their business model is simple, but it has been very effective for them. The fees charged by Mastercard add up to billions of dollars each year, which allows the company to generate large profits and pay their shareholders dividends every quarter.

The only area where Mastercard could improve would be in terms of transparency or lack thereof when it comes to fees charged by banks using their service as well as other fees associated with transactions made using Mastercard products that don’t seem to be known easily, but overall this is a great company with an even greater future ahead of it!

How Does Klarna Make Money? Business Model of Klarna

Top 9 Venmo Alternatives That Make Payments Way Easier

How Does Greenlight Make Money? Business Model of Greenlight


  1. Electronic Value Exchange
  2. ValuePenguin
  3. Statista
  4. Business Quant
  5. pymnts
  6. Mastercard
  7. Target
  8. Statista
  9. Target
  10. Shift Processing
  11. Mastercard
  12. Mastercard
  13. Mastercard
  14. Mastercard
  15. Mastercard
  16. Mastercard
  17. Mastercard
  18. Mastercard
  19. Financial Times
  20. Crunchbase
  21. Mastercard
  22. Mastercard

Leave a Reply

Your email address will not be published. Required fields are marked *