You can almost guarantee that if a bunch of banks were charged with looking after a harmless little mogwai it would end up getting wet, eating after midnight, and turning into a nasty gremlin.
Banks have a solid track record for turning collectively owned, cosy, profitable operations that are performing well into monsters that come back to bite them. The most conspicuous example of this is when banks voted to demutualize the friendly exchanges they collectively owned, turning them, quite foreseeably, into for-profit monopolies, a move that most privately regret.
Banks don't learn – they might be about to do something similarly foolish in the payments industry by allowing MasterCard, the world's second-largest payment card association, to become a public company.
MasterCard hopes to raise up to $2.45 billion in an IPO scheduled for the first quarter of 2006.
MasterCard, like its larger rival Visa, occupies a strategic position in the payments industry, which generates about $300 billion a year in revenues for banks, with tentacles reaching further than any bank.
The company, which has already expanded beyond credit cards with some success, has the potential, if not the declared ambition, to expand further.
One area where MasterCard, like Visa, has had some success, is in the international cross-border remittances market, where the credit card companies now offer prepaid debit cards for international money transfers. Workers in the US will send about $70 billion abroad this year, estimates Aite Group, a financial services consultancy, and this figure is expected to grow at a compound annual growth rate of 7.2%. The two credit card companies together control just 0.7% of the market at present, but their share is expected to expand to 4.4% by 2007.
The success of credit cards in this new payments area comes from their unrivalled global networks and their strong brand names, strengths that they could use in other fields too.
Prepaid debit and stored value cards are another growth area in which the credit card companies could cash in. Stored-value cards are already widely used in the Netherlands and Hong Kong and it is estimated that the value of transactions in the US will rise to about $257 billion by 2009, up from just $63 billion in 2004. Prepaid processors will generate revenues of $1.8 billion in 2009, up from $500 million in 2005.
The payments business generates about a third of most banks' revenues. It already faces intense competition and regulatory pressure, leading to ever-declining margins. The last thing it needs, from a bank's perspective, is another powerful and nimble competitor with a strategic position in several links of the payments chain.
But MasterCard has concerns of its own for which it needs money; some speculate that its IPO is at least in part aimed at saving its owners from antitrust lawsuits.
In September the UK's Office of Fair Trading found that MasterCard and its issuing banks had been overcharging retailers to offset other costs, such as the cost of offering standard interest-free periods. The OFT argued that the unduly high fee amounted to a tax on all consumers because it forced shops to raise their prices.
MasterCard had already changed its fee arrangement last November but has been threatened with another investigation unless it can show that the new fees were not still being used to recover other costs. If found guilty again, MasterCard could face a fine of up to 10% of its annual worldwide turnover. Visa is also under investigation.
Two years ago, MasterCard and Visa reached a $3 billion settlement in the US against claims by merchants that they charged unfairly high prices for processing debit card transactions.
MasterCard has said that up to $650 million in IPO proceeds will be set aside for covering potential legal costs.