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Mastercard (MA) Boosts Blockchain Usage in its Operations

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Mastercard Incorported (MA - Free Report) , essentially a technology company, is fast incorporating the blockchain technology into its operations. The company is going a step further by trying this novel technology after having made massive investments in its digital platform  over past many years. The need for the same is driven by changing trends in the digital economy, which calls for faster payments via electronic means.

The company was the front runner in the adoption of this technology by announcing its blockchain API in 2016. Blockchain is the technology underlying the cryprocurrencies. As the name implies, it is a chain of blocks which gets built step by step. As each transaction takes place, it is put into a block, which is then connected to the previous block, the transactions are blocked together to form an irreversible chain.

Though this technology is still in its nascent stage and its full potential remains yet to be harnessed, it is widely believed to be a game changer. The benefits of blockchain cannot be undermined in the payments space given the speed, flexibility, security and cost effectiveness it provides to the transactions.

Last year, Mastercard launched its own blockchain network to implement the technology in the business-to-business (B2B) space to address challenges of speed, transparency and costs in cross-border payments. Mastercard intends to take advantage of the blockchain technology and the Mastercard Settlement Network to transfer funds between bank accounts. The Mastercard Settlement Network reads the blockchain and will transfer the funds between two banks. It then writes a confirmation of transfer to the Mastercard blockchain.

The Mastercard blockchain technology will complement the company’s existing capabilities including virtual cards, Mastercard Send and Vocalink to support all types of cross-border, B2B payment flows — account-based, blockchain-based and card-based. The company is, however, not using the digital currency but keeping its transaction base in fiat currency.

The company recently joined Enterprise Etherum Alliance, an open source block-chain consortium, to explore the potential of the etherum technology across a gamut of uses among which some are outside the scope of Mastercard’s traditional payments environment.  

Year to date, Mastercard’s stock has gained 65% significantly, outperforming the industry’s growth of 38%.

Another company in the same space, Visa Inc. (V - Free Report) , is working on the blockchain technology. American Express Co. (AXP - Free Report) last November, joined blockchain network RippleNet to explore the use of this technology for faster, more efficient B2B payments. Recently, The U.S. Patent and Trademark Office released the patent application filed by American Express Travel Related Services Company, the payment technology firm’s travel unit, which outlines the use of blockchain technology to accelerate payments between two parties. Its application emphasizes the potential for blockchain to enhance existing card networks.

Mastercard carries a Zacks Rank #2 (Buy). Another player worth considering from in the same space is Global Payments Inc. (GPN - Free Report) , which carries the same Zacks Rank as Mastercard and surpassed earnings expectation in each of the past four quarters, with an average beat of 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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