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Penetrating The Bureaucracy: The Business Of Usury & Privilege
Recently I was reading Jason R. Hastie's "The Dollar Code: Get Out of Debt With One Number," where I came across the story of Frank McNamara, the creator of the credit card.
The story caught my attention and I decided to do a little research of my own.
Here's what I found.
According to the Diner's Club, the idea of the credit card came to Frank McNamara in 1949 while he was having dinner at a restaurant in New York City.
When it was time to pay the bill, McNamara realized he had forgotten his wallet.
What happened next depends on whom you ask: According to "The Dollar Code," McNamara negotiated his way out of washing dishes to pay for his dinner by signing for it instead and promising to pay the restaurant back. According to NerdWallet, he had to call his wife and ask her to deliver some cash.
According to Jonathan Levine's 2008 "Credit Where It Is Due: A Social History of Consumer Credit in America," this dinner — apparently known in the industry as "the first supper" — is a parable that didn't actually happen.
However, it is undisputed that McNamara went on to create the first American consumer-facing credit card company, the Diner's Club, which he founded in 1950 with Ralph Sneider.
According to the Pittsburgh Post-Gazette, the idea behind the Diner's Club was sign now, pay later. Members of the club would be able to sign for their dinner, and then pay the bill later. McNamara started the club with 27 participating restaurants and 200 $3 memberships that he sold to his friends and acquaintances.
At the same time, Alfred Bloomingdale — grandson of the founder of Bloomingdale's department stores — founded Dine and Sign in Los Angeles, another credit card business, according to the New York Times.
After a friend notified Bloomingdale of the Diner's Club, Bloomingdale had a series of meetings with McNamara and Sneider, which resulted in a merger of the two companies. Bloomingdale was named vice president of the new Diner's Club.
Bloomingdale predicted that credit cards would become more popular than cash.
A man ahead of his time, Bloomingdale was the one to predict the eventual demise of cash and rise of the credit card: "The day will come when the plastic card will make money obsolete," he said.
According to NerdWallet, the Diner's Club offered charge cards — which are almost extinct, and not exactly beneficial nowadays — that allowed customers to borrow credit from a middleman, use that money to buy something, and then eventually pay the middleman back.
The Diner's Club generated a profit by charging stores a 7% fee on all purchases and requiring customers to pay a $3 annual fee.
Although merchants weren't exactly happy with the idea of a credit card that could be used everywhere — fewer people would be using their individual store credit cards — McNamara's cards caught on quick with customers, expanding to 20,000 users in the first year. In its second year, The Diner's Club made $60,000 and established franchises in Canada, Cuba, and France.
According to Bankrate, eight years after the founding of the Diner's Club, American Express and Carte Blanche started issuing cards, along with banks such as Bank of America who originally issued the Visa card as the BankAmericard, and then turned the card into a national franchise that could be issued by local banks across the US (in 1958, national banks didn't yet exist).
Visa and MasterCard came not long after the Diner's Club.
In 1967, four banks in California founded a competitor for BankAmericard, known as the MasterCharge program. This program became MasterCard 12 years later.
Credit card use didn't really take off until 1978, though, when a Supreme Court ruling allowed nationally chartered banks the ability to charge out-of-state customers the interest rate set in the bank's home state.
From there, credit card use only grew. According to ABC News, today more than 75% of Americans own at least one credit card, and in 2012, there were a total of 26.2 billion credit card transactions in the US alone.
~~~
Performing a government delegated action implies a privilege. A business performing a delegated function, directly or indirectly, must conform to the restraints placed upon that government.
Freedom of speech protection extends to the banks that are given charter by the government. Businesses branching off of such privileged businesses, and are still participating in said activity, are also restrained just as government is.
Usually, the securities of a publicly traded company are owned by many investors while the shares of a privately held company are owned by relatively few shareholders. A company with many shareholders is not necessarily a publicly traded company. In the United States, in some instances, companies with over 500 shareholders may be required to report under the Securities Exchange Act of 1934; companies that report under the 1934 Act are generally deemed public companies.
Advantages
Public companies possess some advantages over privately held businesses.
Publicly traded companies are able to raise funds and capital through the sale (in the primary or secondary market) of shares of stock. This is the reason publicly traded corporations are important; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises - significant capital could only come from a smaller set of wealthy investors or banks willing to risk typically large investments. The profit on stock is gained in form of dividend or capital gain to the holders.
The financial media, analysts, and the public are able to access additional information about the business, since the business is commonly legally bound, and naturally motivated (so as to secure further capital), to publicly disseminate information regarding the financial status and future of the company to its many shareholders and the government.
Because many people have a vested interest in the company's success, the company may be more popular or recognizable than a private company.
The initial shareholders of the company are able to share risk by selling shares to the public. If one were to hold a 100% share of the company, he or she would have to pay all of the business's debt; however, if an individual were to hold a 50% share, they would only need to pay 50% of the debt. This increases asset liquidity and the company does not need to depend on funding from a bank. For example, in 2013 Facebook founder Mark Zuckerberg owned 29.3% of the company's class A shares,[15] which gave him enough voting power to control the business, while allowing Facebook to raise capital from, and distribute risk to, the remaining shareholders. Facebook was a privately held company prior to its initial public offering in 2012.[16]
If some shares are given to managers or other employees, potential conflicts of interest between employees and shareholders (an instance of principal-agent problem) will be remitted. As an example, in many tech companies, entry-level software engineers are given stock in the company upon being hired (thus they become shareholders). Therefore, the engineers have a vested interest in the company succeeding financially, and are incentivized to work harder and more diligently to ensure that success.
Disadvantages
Many stock exchanges require that publicly traded companies have their accounts regularly audited by outside auditors, and then publish the accounts to their shareholders. Besides the cost, this may make useful information available to competitors. Various other annual and quarterly reports are also required by law. In the United States, the Sarbanes–Oxley Act imposes additional requirements. The requirement for audited books is not imposed by the exchange known as OTC Pink.[17][18] The shares may be maliciously held by outside shareholders and the original founders or owners may lose benefits and control. The principal-agent problem, or the agency problem is a key weakness of public companies. The separation of a company's ownership and control is especially prevalent in such countries as U.K and U.S.
Stockholders
In the United States, the Securities and Exchange Commission requires that firms whose stock is traded publicly report their major shareholders each year.[19] The reports identify all institutional shareholders (primarily, firms owning stock in other companies), all company officials who own shares in their firm, and any individual or institution owning more than 5% of the firm's stock.[19]"
"Mastercard Incorporated (stylized as MasterCard from 1979 to 2016 and mastercard since 2016) is an American multinational financial services corporation headquartered in the Mastercard International Global Headquarters in Purchase, New York, United States.[2] The Global Operations Headquarters is located in O'Fallon, Missouri, United States, a municipality of St. Charles County, Missouri. Throughout the world, its principal business is to process payments between the banks of merchants and the card issuing banks or credit unions of the purchasers who use the "Mastercard" brand debit, credit and prepaid to make purchases. Mastercard Worldwide has been a publicly traded company since 2006. Prior to its initial public offering, Mastercard Worldwide was a cooperative owned by the more than 25,000 financial institutions that issue its branded cards.
Mastercard, originally known as "Interbank" and "Master Charge" from 1966 to 1979,[3] was created by several California banks as a competitor to the BankAmericard issued by Bank of America, which later became the Visa credit card issued by Visa Inc."
"History
The original banks behind Mastercard were United California Bank (later First Interstate Bank and subsequently merged into Wells Fargo Bank), Wells Fargo, Crocker National Bank (also subsequently merged into Wells Fargo), and the Bank of California (subsequently merged into the Union Bank of California).[citation needed]
In 1966, this group of California banks formed the Interbank Card Association (ICA). With the help of New York's Marine Midland Bank (now HSBC Bank USA), these banks joined with the ICA to create "Master Charge: The Interbank Card". The card was given a significant boost in 1969, when First National City Bank joined, merging its proprietary Everything Card with Master Charge.
In 1968, the ICA and Eurocard started a strategic alliance, which effectively allowed the ICA access to the European market, and for Eurocard to be accepted on the ICA network. The Access card system from the United Kingdom joined the ICA/Eurocard alliance in 1972.
In 1979, "Master Charge: The Interbank Card" was renamed "MasterCard". In 1997, Mastercard took over the Access card; the Access brand was then retired.[citation needed]
In 2002, MasterCard International merged with Europay International, another large credit-card issuer association, of which Eurocard had become a part in 1992.
In mid-2006, MasterCard International changed its name to MasterCard Worldwide. This was done in order to suggest a more global scale of operations. In addition, the company introduced a new corporate logo adding a third circle to the two that had been used in the past (the familiar card logo, resembling a Venn diagram, remained unchanged). A new corporate tagline was introduced at the same time: "The Heart of Commerce".[4]
In August 2010, MasterCard expanded its e-commerce offering with the acquisition of DataCash, a UK-based payment processing and fraud/risk management provider.[5][6]
In March 2012, MasterCard announced the expansion of its mobile contactless payments program, including markets across the Middle East.[7]
In spring 2014, MasterCard acquired Australia's leading rewards program manager company Pinpoint for an undisclosed amount.[8]
Mastercard teamed with Apple in September 2014, to incorporate a new mobile wallet feature into Apple's new iPhone models, enabling users to more readily use their Mastercard, and other credit cards.[9]
In July 2016, Mastercard introduced their new rebranding, along with a new corporate logo. In addition, they changed their service name from "MasterCard" to "mastercard".[10]
In August 2017, Mastercard acquired Brighterion, a Delaware Corporation headquartered in San Francisco, California that provides a portfolio of artificial intelligence and machine learning technologies.[11] Brighterion holds several patents.[12]
IPO
The company, which had been organized as a cooperative of banks, had an initial public offering on May 25, 2006, selling 95.5 million shares at $39 each.[13] The stock is traded on the NYSE under the symbol MA, with a market capitalization of $236.15 billion as of August 2016.[14] "
