Title: The Thesis: The Hidden Bull Case For Mastercard Show: The Joseph Carlson Show (Qualtrim Studio "Deep Dive") Guest: Joseph Carlson Date: 2025-12-30 URL: https://youtu.be/BI94YfCjgy4 (Qualtrim source: https://www.qualtrim.com/app/studio/watch/67f30b94-d9a4-469d-98f3-b21c3d503a9f) Length: 41:13 Note: A Qualtrim Studio Deep Dive by Carlson himself (not a guest), with a public YouTube mirror (id BI94YfCjgy4) published 2025-12-30; Qualtrim re-listed it 2026-04-15. Deep-links use youtu.be/BI94YfCjgy4?t=<seconds>. Auto-transcript filler (um/uh/you know, stutters) removed — wording otherwise verbatim; the source auto-transcript's "Qualrum" mis-hearing corrected to Qualtrim (Carlson's stock-analysis product). (mm:ss) cues kept in place.
00:00 All right, welcome everyone. This is going to be an exclusive episode entirely dedicated to Mastercard. And I know that I've made a couple videos on this, but like I typically do, I like to dive in deeper and deeper into some of my companies. I've done so with Netflix, with Google. I made a lot of content on those, especially when I thought they were a good deal.
00:21 With Mastercard going into 2026, I continue to believe that this is one of the best companies in the market. It is phenomenally good. And not only is it really good, but I continue to believe that it's misunderstood and that I have a bit of a differentiated view on the company. And that's really where the excess gains come from.
00:40 They come from a combination of buying a really good company and having some type of understanding or viewpoint or a better overall context of what the company is than the average investor. Because that better understanding can build conviction and it can make you more likely to hold the company when other investors are really concerned about it.
00:58 Even though Mastercard on the surface seems like a very simple to understand company, there are many people that have many concerns about it. What about stablecoin? What about these regulations going on? What do those mean for Mastercard? What about these different rails that Europe's building? They're direct-to-bank payment systems.
01:20 What about India's? What about South America's? There's so many questions about this company. Why do I pick Mastercard over Visa? I get that question a lot. I want to address all of these questions, all of these concerns. And not only just address questions and concerns, but I want to go over how I view the company.
01:40 Now, what I found is investing in companies, we can go into Qualtrim and look at the numbers, but most of us have already done that. We know that Mastercard is a great company fundamentally, high margins, operating leverage, organic revenue growth, free cash flow that just goes up and to the right. We've seen that.
01:58 Qualtrim illustrates it clearly. So what I plan on doing is kind of avoiding all that stuff. We're not going to go through the Qualtrim charts and graphs in this episode. Instead, we're going to take more of a philosophical, cerebral view of the company. And my goal is to change how you understand Mastercard, the way that you actually see the company.
02:19 I'm hoping that that changes over the course of this episode. So first of all, I just want to point out I have invested in Mastercard. Most of you are aware of this, but maybe you're not aware of the extent of my investment. It's approaching $200,000. Now, for some investors, that's not much money. For me, that's a lot of money.
02:40 That's a lot of money. That's my biggest position, even bigger than Google. Now, it's not my biggest winner, but it's a company that I've recently bought a lot in because I feel so confident about the company. Now, the way that I would just underwrite this investment very quickly is that Mastercard is not going to be the best performing stock of 2026.
03:00 I don't believe that's going to happen. I also don't think it will be the worst performing. I think Mastercard has a high likelihood of outperforming the S&P 500 and the NASDAQ and doing so with a lower amount of risk. To me, it is a nice blend of extraordinarily high quality, incredibly good fundamentals, and a moat that's very wide and very deep, and it has an ever evolving direction that I like the direction they're going.
03:28 I think it actually brings more upside. So what I look for in stocks is not just what I can make the most money on, but also I want to protect the gains that I have. It's significantly more difficult to come back from losing money than it is to never just lose it in the first place. So Mastercard is an asymmetric bet.
03:46 It's one that I've made those type of bets with Google in early 2025. And I'm making the same thing with Mastercard. It's that type of company. So let's go ahead and jump in. And I just want to again go over this on more of a high level of the understanding of the company. When we look at Mastercard, the biggest thing that I want you to do is kind of convince you.
04:09 And I know it's easy to say this. It's a little bit trite, but I want to convince you that Mastercard is not a credit card company. That's the hardest thing to do. At the end of the day, everybody calls Mastercard a credit card company. And the goal here is to convince you that it's not a credit card company.
04:25 Mastercard is a technology standard company. It has a global standard and a protocol of trust. So that's what they're in the business of. If you ask the CEO of Mastercard, what are they actually doing? They're not saying, "We're just trying to get more cards out. We're trying to just expand the network, get more cards out."
04:44 No, what they're doing is they're trying to become the center, a global standard of trust. So Mastercard is on the surface they're selling these products. We call them credit cards, but when consumers buy credit cards or they sign up for credit cards and they get the rewards, consumers just see that they're getting a credit card and they're getting rewards.
05:04 And that's mostly what we process, but a lot more is going on behind the scenes. And this is the first concept that I want to break down. This is the concept that what Mastercard is actually selling is an equilibrium to a trust deficit. So in every type of transaction that you do, there is a trust deficit.
05:28 The deficit means there's a lack of trust. It doesn't exist. Especially if you're doing business with somebody that you don't know. So whether you go to a business or whether you sign up a contractor to come do something at your home, there's this inherent lack of trust with doing business with that person.
05:46 Think about if you go online to purchase something. You might feel a little concerned about putting payment information in a random website. You might think, "I like this product, but are they really going to send it out when I give them money? Are they going to ghost me? Are they going to give me a product that's not the same as what they're advertising? What if they only give me half the things that I order?" There's all these inherent distrust that you have when you're doing business across the globe. On the other side, the owner
06:16 of the website, the person selling the product also has a trust deficit. They're likely looking at it saying, "Is this customer actually going to pay? Are they good for the money? Are they going to pay me the money and then try to claw it back later? Do they have a good payment history? Where do they come from? Are they actually being truthful? Are they who they say they are? Did they steal a payment information, a bank information, and are they paying with the stolen information, and I'll
06:41 have to return the money once the real person that owns it comes back?" These are real concerns that the owners of merchants and websites have. This is what's called a trust deficit. This exists everywhere in commerce. I deal with it with Qualtrim. People need to have trust that I'm going to deliver the product.
07:02 I have to have trust that they're paying for it in a valid way without fraud. That trust deficit has to work. And Mastercard has positioned itself to be an equilibrium to that trust deficit. Meaning that they're the ones that are taking both sides of this and they're bridging the gap. They're building a bridge over that big trust deficit below.
07:24 So when you look at Mastercard instead of envisioning it as a company that sells credit cards or a network company. It's not even a network company. It is a company that's selling a solution to this problem of a global standard and a global protocol for trust. So it's important to understand that everything Mastercard does like all the network and all these different things that they have, the credit cards, the rewards, all of that is nice to haves, but the basic core of their business, not a credit
07:57 card company. It is selling an equilibrium and resolution to trust, the trust deficit. The trust deficit exists between every single transaction. If consumers and merchants aren't able to find a resolution or a bridge to that trust deficit, the exchanges never happen. The transactions never happen because people again do not trust each other for very valid reasons.
08:20 So Mastercard is in the business centrally of being a global trust protocol. Now, the way that they actually build a unique position and a business model off of selling trust is backed by their network. That's a big part of it. And the network is really interesting when you study different networks.
08:39 There's ones that are just a simple network effect. And network effects are very different in their level of intensity or their level of robustness. Mastercard has like the most robust network ever. On the scale of different types of networks, Mastercard's is as big as it gets. For example, you just have a two-sided network like a phone call.
09:01 If you call someone else, they answer the phone, each of you are offering value to each other. If one of you leaves, then all the value is gone. With Mastercard, it's this side effect network where every single additional cardholder or Mastercard user, they offer exponentially more value to every single merchant.
09:24 So a merchant wants as many potential customers that they have that trust deficit bridge built. And so every single person that uses Mastercard is more valuable to that merchant. And on the flip side, every single additional merchant is exponentially more valuable to the Mastercard user. So this creates what's called a chicken and the egg problem.
09:44 Like they have so many people using Mastercards and so many merchants accepting it. The network is already so huge and self-reinforced that there are no new entrants in this category. Nobody can start from zero and build up the same type of side angle network. It just doesn't exist.
10:03 So you have what you have right now. You have Visa, Mastercard, American Express. That's going to be it. And Mastercard again has billions and billions of cards. This self-reinforces it. Now another thing that Mastercard has done as well as Visa, it's applicable to both. But one thing that they do that I think is really cool is they basically leverage their network to create a merchant buy-in for the high-end consumer.
10:29 In a way, if you envision this, you might just think of it as rewards, but rewards is kind of a different way of saying that Mastercard is holding their high-end shoppers hostage to the merchant. So what Mastercard does is they say, "Hey, in order for you to accept these high-end customers as a merchant, you need to pay Mastercard. You need to pay into this system, the 2%.
10:54 Some of it goes to the bank, some of it goes to Mastercard. Otherwise, you're not going to be valid. You won't be acceptable to our network." So the merchant would lose out on all these high-end shoppers if they say they don't want to pay that 2%. On the other side, they bribe these high-end consumers with rewards. So they say, "Hey, if you use our Mastercard credit cards, we'll give you 3% back on this and 2% back on that."
11:20 The high-end consumers, the ones that are making the money that are signing up for the credit cards, they want that cash back. So they're being bribed into using the credit cards, and the high-end customer does not care if the merchant has to pay for the reward. They don't care about that.
11:36 They just want their cash back. So Mastercard has also created this really amazing, it sounds bad, but it's kind of like a hostage situation. They basically said if you want access to our most high-end customers, you have to pay the fee, which is the merchant fee, the transaction fee. It's called the interchange fee for using Mastercards.
11:56 And Visa does the same thing. American Express does even the same thing to a greater extent because they specialize in just the high-end consumer. But Mastercard has built a business off of this double-sided chicken and egg network effect. Then they hold the high-end consumer and say you really have to pay these fees in order to get access to them.
12:15 Otherwise, they just won't have access to your merchant and you'll lose out on business. Every merchant makes a calculation that it's far more acceptable. In fact, it's a way better ROI to just pay 2% and get access to the best consumers. Every single merchant's going to do that. So they have this nice self-reinforcing moat. But then most of all again this all comes back to trust.
12:34 Mastercard is selling a protocol global standard of trust and it allows people from anywhere internationally to swipe a card or put in information and immediately and in split milliseconds have no fraud. They know that the other person's good for the money. Mastercard said they are. So it's complete trust from that consumer if they're using a Mastercard.
13:00 Not only that, they have authorization and authentication. They know who they're dealing with. They have the payment authorized and insured. So all of that's taken care of by Mastercard. Now Mastercard's not lending money. They're not in the business of being a bank. What again they're selling is that trust.
13:20 So this part of the moat, I think it's the central part that most people understand. What I did was I had Gemini make an image of this moat, the protocol of trust. So you can kind of visualize it here. This is what it looks like. So I'll blow it up a little bit. We have right here the protocol of trust. This is the trust layer authorization.
13:41 So in the center here you have the authorization of the transaction. This is the bridge that makes it so that trust deficit is resolved. We have the merchant, the acquirer bank, the issuing bank and the consumer. All parties work through Mastercard's protocol of trust. Mastercard takes a sliver of the transaction during that process and because so many people find it valuable to have that trust bridge filled in to have that resolution they all decide to use the network without that deficit of trust transactions don't happen that's why merchants are willing
14:12 to pay the 3% to accept Mastercard over not accepting it because if they don't accept it there's no trust there the merchant will not do business with the customer so doing business with them and paying 3% is better than not doing business at all. Mastercard's product that's the most valuable is trust. Everything else, the network, the points, all of that type of stuff, all the technology is central to trust.
14:39 Now, the next thing that I wanted to address, and this is a very common concern, it's a new bear thesis for Mastercard, which is crypto technology and stablecoins. Now, there's something that I've noticed about this one, and this is another one that I think will change your viewpoint on this subject. A lot of what the engineers and technologists believe is the most valuable and what their dream is.
15:00 Like when you look at a technologist, I was one, I was a programmer for a long period of time and we're always looking for efficiencies. And with crypto technology or stablecoin, the big selling point is efficiency. But consumers, especially shoppers, they don't want efficiency. That's not something that's attractive at all.
15:20 Efficiency means finality. It means that something's done very fast and it's final. That's efficient. Consumers don't want that when they're shopping. And that's a disconnect. Again, the people that are in crypto, that are in stablecoin, the people that love this type of stuff, they're usually technologists, they're usually hobbyists, they love the type of efficient thing.
15:41 If you go and ask a crypto investor, why are you bullish on Bitcoin or why are you bullish on Ethereum? They will list all the technology. It's trackable and you can see every transaction and the transactions happen instantly and they're super secure and all these type of things where it happens efficiently and immediately.
16:05 Again efficiency means finality. It means that when you pay for something, the payment's done immediately. Within milliseconds, your crypto money, whatever it may be, whether it's Bitcoin or something different, the money's out of your wallet and into the merchant's wallet immediately. No time to second guess your purchase.
16:27 If you bought the wrong thing, it's done. They have your money. You see the difference there? To a technologist, that sounds great. To a consumer, it sounds terrible. There's multiple value propositions that having an efficient transaction like that and optimizing for efficiency actually harms the consumer.
16:50 The consumer doesn't optimize for efficiency. The consumer optimizes for their own self-interest. It is in the self-interest for some part of the transactions to be less efficient. So a couple that I can name off. First of all, when I'm buying something online, I do not want money moved out of my account the second that I buy it. I don't shop with debit cards.
17:08 I shop with credit cards. I want the bank to front me the money to pay for the thing. I want Mastercard to verify the purchase and authenticate it so it's safe. And then I want the insurance from the credit card that says that if I don't get the product delivered that was promised to me, I'm going to just dispute it and get my money back.
17:30 And it's actually not my money because I didn't put it up. It's the bank's money. I'll say, "I'm not paying for this." I'll point to the bank and I'll say, "I'm not paying for this because I never got my product." The bank will deal with the merchant. That's a far less efficient process. And that's one part of it.
17:49 You get far more control over your finances with a less efficient system than crypto or Bitcoin. Another thing that it does is inefficiency actually benefits the consumer with the time value of money. For example, I can pay for like $5 to $10,000 worth of things throughout the month. I have a business with lots of expenses and I'm not paying for it. Again, the bank's paying for it.
18:11 I'm putting on a credit card. All those charges are on a credit card here. Then I go 30 days collecting interest in my bank account before I actually have to pay for those purchases. So I'm earning another 4 to 5% on my bank savings account before I move that money to pay for the credit card. Might not seem like a lot, but over time, that's hundreds of dollars.
18:35 That's hundreds of dollars of interest that I get by not having to pay for things immediately upon purchase. The inefficiency benefits me. If I had to move the money out right away, it doesn't benefit me at all. So there's another aspect of it. If you do a transaction through crypto or stablecoin, that money is moved.
18:55 There's no going back. It's settled. Done. They have your money immediately. That's highly efficient, but it's terrible for the consumer. You have to be 100% certain about the thing that you're purchasing and who you're purchasing it from before you move the money because once they have it, it's in their hands and you're at the mercy of them.
19:15 That's entirely different than what Mastercard offers. They offer a less efficient system, but one that's more tailored around the needs of the consumer. It's not your money that goes out to the merchant. It's the bank's money. The bank is fronting the money because Mastercard's saying that they're a reliable place to buy from.
19:33 If you're not getting the product, if they're scamming you, then you can report that to Mastercard's network. They will contact the bank and say, "This person is scamming. They're fraudulent." The bank will claw back that money from the merchant and Mastercard will mark them on the network as being risky and they'll keep track of that and they'll eventually push them out of their network and not support them anymore.
19:58 So all these different things are a little bit less efficient but far more robust and they favor the consumer far more. So again, when we're looking at this in terms of financials and consumers, efficiency is a terrible thing to have. Some aspects of it, you want transactions to go through quickly, but you want layers of protection.
20:22 You want time value of money and float. You want backups. You want different systems to keep the consumer so that they have their own self-interests protected. And this is again things that when you're looking at it from an engineering perspective, when you're looking at it as a coder or a technologist or a hobbyist, you're just looking at how cool the technology is of crypto, you're not really thinking about what's valuable to consumers.
20:46 Mastercard has actually thought about what's valuable to the consumer and they've optimized for that. And that's the reason that crypto will never in a hundred years overcome Mastercard's network. Not with the way that they're doing things. Another thing in the competition between Mastercard and stablecoin or crypto is Mastercard again offers rewards both on the debit card and on the credit card and they do that by holding those customers hostage to the merchant.
21:14 The merchant has to pay those fines. Stablecoin and crypto do not do that. They've tried to offer rewards, but they can't really do the same thing unless they charge the merchant a certain percentage for using their network, which would make them less efficient like Mastercard, which would be giving up the one selling point of a stablecoin or a crypto technology.
21:33 So essentially, in order to compete with Mastercard, they would have to change their product, their technology to more mirror a Mastercard, which would just make it a lower quality product trying to imitate a higher quality version of the same thing. Not going to happen. You have the chicken and the egg problem.
21:54 Everybody's already on these networks using them. Trying to replicate them is impossible at this point. Then trying to go the other route of hyper-efficiency is not as good of a product. That's why crypto and Bitcoin will never be widely adopted like a Visa or Mastercard for consumer payments for going around and buying products.
22:13 They've already been around for a long period of time. Why don't you think everybody's using them to buy everything? If consumers valued the rapid efficiency of the transaction, the finality of it, you think they'd be everywhere. Yet on products that I see, every company's accepting Mastercards and Visas, they're not paying with crypto because there is no demand there.
22:32 There's no value added to the customer. So when people bring up the stablecoins and the new technology with crypto, this is my thoughts on it. It's a little bit more in the weeds to explain, but there's multiple reasons why I believe that it does not stand a chance against Mastercard and Visa. It is not a credible threat against the product that they offer.
22:54 It does not offer more value, it offers less. Doesn't offer more safety. It offers a far less safe and far more efficient and final purchase, which is not what people are looking for. Now, let's go ahead and talk about things that actually do represent a threat to Mastercard. I think this is the next thing that we need to address.
23:11 There are a few things that I do consider real bear cases for Mastercard, real things that could go south over time, and I want to go over them so that you understand them. Again, when we look at the moat of Mastercard and what they're actually selling, we have this graphic here, which I think illustrates it pretty clearly.
23:27 They have central here, this protocol of trust. You have the acquirer, issuer bank, consumer, merchant, and then they have that big trust layer in between. Everybody wants to do business through this because without this, you do not have the trust deficit bridged. So that's the big thing they're selling is trust in the center.
23:45 But what happens if this whole thing is just bypassed by an entirely different rail? Now, of course, there's the chicken and the egg problem. Nobody can build a network as big as Mastercard's using the same type of method that they did, but there is a way that this could happen in a different version. This new chart from Gemini also shows what may happen that could potentially threaten the moat of Mastercard.
24:12 And it's actually not what could happen, but some of this is actively happening right now and it is weakening the growth potential and moat of Mastercard as we sit here today. This is an illustration showing the dynamics of a rail bypass. Basically, Mastercard has all these consumer transactions going to their Mastercard protocol of trust.
24:33 This is like the toll booth that Mastercard sits on. Everything goes through them because again you don't have that bridge over the deficit. But here off to the side we have this new rail. What is that rail? That rail is direct account to account A2A rails that circumvent the intermediary completely.
24:55 Now we have a lot of different business going through that rail. So where did this rail come from? Is it another company like Mastercard? Is it another Visa? No. Again, most of this is from the government. There's a couple different ones. I've looked at a lot of different government entities creating these type of rails, these government rails that commerce can happen through.
25:15 One of them, for example, is happening in India. It's called UPI. UPI is just massive in India. It has decimated card usage for small transactions. So in India, people are not swiping credit cards. They're paying with UPI. UPI is the government direct, it's actually called account to account. So money shifts directly from one account to the other.
25:40 It's a government-made mechanism and it's very popular amongst small transactions especially in kind of developing economies ones that aren't quite as wealthy but it has taken a large amount of transactions from India. If the US's Fed system, they have a FedNow system that's supposed to be like the same type of thing as UPI in India.
26:02 If that were to have the same impact, that would decimate Mastercard, but it's very unlikely that it will be adopted in the United States. Part of the reason that UPI is being adopted so widely in India is because first of all, they don't have a high income there. So there's just not as much intent to earn points.
26:17 That's more of a high income consumer thing. And another thing is they really didn't have a payment system at all. So UPI is kind of offering this payment system before anyone else. Then we have in Brazil another big one is Pix. This is another government building their own real-time payment network.
26:36 The rail allows a consumer to scan a QR code and transfer money instantly to a merchant for free or near zero cost. So this sounds pretty scary, but why am I not concerned about this long term? So the reason that I'm not concerned about the rail bypass is because I've evaluated these different products by the government.
26:56 The Pix in Brazil that allows you to instantly transfer account to account through a government system as secure as it may be. The issue here is that it has, and even the UPI from India. The issue with these type of government-backed payment systems is the very same type of issues I highlighted with crypto and Bitcoin. They are inferior products overall.
27:15 They're just not as good as Mastercard. Now, there's other reasons why I'm not too concerned about these government-backed payment systems. One of them, for example, is that most of them are domestic-only instant transfer systems. So they're built by the Brazilian government for the Brazilian people.
27:32 They're built by the Indian government for the Indian people and so on and so forth. They don't really do international travel, which is a lot of the most valuable solutions to transfer money is having international purchases, purchasing things online, living in Brazil and purchasing things from a US website or traveling abroad, doing that type of thing.
27:51 And that's exactly what Mastercard's good at. They have a huge network that's completely global. They can verify and ensure those transactions and offer their safety protocol to people that are traveling. So that's infrastructure that's very valuable even to these governments that are building their own payment methods.
28:07 But it's actually not why I'm not worried about them the most. There's other things that make me even less concerned about this. One of them is that I truly think that Mastercard views these government payment systems like UPI and Pix as opportunities more than competitors. And the reason why is because the government's really good at building systems that move money quickly. Like Pix moves money quickly.
28:31 The issue with it is they're not good at preventing fraud. They say that they are. The government will of course say this is a very safe way to transact. Lots of people do it, but it's not. It's just not safe. Transacting through Visa, Mastercard is safe. Transacting through Pix, UPI, not safe. Your money again is final.
28:54 You move it instantly. There's not a lot of checks and balances and the safety features that they have are nowhere close. The insurance they have is nowhere close to what goes on with Mastercard. For example, we have some statistics here. Argentina has a huge problem with crypto scandals. Crypto is just rife with scams.
29:14 It's a scammer's paradise to be able to trick people to move money instantly with zero recourse of getting it back. But it's not just crypto. It's also Pix, the government-made system created and designed by the Brazilian government. We have an article here that highlights that Brazil stands at a dangerous crossroads where financial innovation meets criminal exploitation at unprecedented scale.
29:36 The nation's revolutionary instant payment system Pix has transformed how 140 million Brazilians transact money. But it has simultaneously created a $2.7 billion fraud ecosystem that represents one of the most successful criminal revenue streams in global cyber crime. The statistics are staggering and deeply alarming.
29:58 One fraud case every 16 seconds. Nearly five scam attempts every minute. Between July of 2023 and 2024, financial losses linked to mobile theft and online scams were $34 billion, a sum that eclipses the GDP of many nations with 94% of Brazilians encountering scam attempts at least monthly and a total yearly damages of $54 billion.
30:23 That's in USD. Brazil has earned a grim distinction. It is simultaneously the world's most advanced digital market and one of the most dangerous fraud battlegrounds. So they built this really cool system. It moves money around very quickly, but that increases your likelihood of being defrauded.
30:48 The economic toll of Brazil's fraud crisis defies comprehension. $54 billion in estimated annual losses to scams, 2.5% to Brazil's entire GDP. This is in their currency, 186 billion, which is probably like 20 billion in USD lost to mobile theft and online scams. We have another $10 billion in banking sector fraud losses.
31:13 In 2024, we have more billions lost in specifically Pix related scams, a 43% increase from the previous year. And then we have retail fraud. And there's a human cost to it and all this type of stuff. It highlights the double-edged sword of Pix. Now, what do you think Mastercard's doing when they look at this? When they look at the rampant fraud in Pix's system and in UPI's with these government-backed systems, they think, "How can we offer a little value here? Maybe we have some services that will add value to the situation." And what do you know? That's
31:46 one of the things that Mastercard does. They literally have a revenue line called value added services and that's where that revenue line comes in. Mastercard has made it so that any government system like this where retailers and merchants and banks and everybody in between the consumer they're all dealing with this massive amount of fraud.
32:08 There's another staggering statistic that in Brazil's Pix only 9% of fraudulent money is ever returned back to the consumer. Meaning out of a hundred dollars that's defrauded, they get back $9. It's incredible. I've used a Mastercard and Visa forever, I get back every single dime of defrauded money.
32:31 It doesn't happen that often because they protect you from that pretty well, but even if it does, if somebody randomly charges you something or there's a transaction you don't want, you get your money back, no questions asked. This is an entirely superior value proposition of what Mastercard offers to Pix.
32:49 But again, they're not competing product versus product. That's not what Mastercard's doing. Instead, they're saying, "How can we add value to the Pix system? How can we make it so that the merchant and the consumer trust each other more? How can we validate these transactions? How can we add that trust protocol to even a different rail?" And this is what they've been going into the multi-rail strategy where they have again they're selling trust.
33:15 They don't know how payments are going to occur. They don't know the speed of the payment or how it's going to be done. But they want to build trust between the two parties. And trust lowers fraud. It makes customers feel more comfortable because they can get their money back if they are defrauded, which most likely won't happen because of this trust layer.
33:32 Mastercard has taken all different steps to build infrastructure to buy up different companies to build cybersecurity infrastructure to use their massive data to build trust into the situation. So for example they've bought up, they're constantly doing these tuck-in acquisitions of these different companies that actually work with the governments.
33:53 They're offering different services that layer upon the government service that actually adds in an additional layer of trust at a very small price. And lots of consumers are finding that worthwhile because they'd rather pay an extra like 0.2% on a transaction and get the layer of trust that Mastercard provides. So the big thing to look at here is Mastercard is not treating this like competition.
34:14 It's more like a thing where they can bring it into the fold of the value added services they offer. They are going headfirst into this cybersecurity fraud detection know your customer and they offer consulting as well to major businesses and governments. They look at all the transactions and the data.
34:33 They have all their global data of all their customers and they can help them make better decisions with the data that they have. So there's a lot of things that Mastercard can do to grow with this. A visualization of this is if you look at the previous business model, this is again what it looks like. We have the government's payment system bypassing Mastercard.
34:53 And this is kind of their new business model of how they've evolved over time. You have the global commerce and digital economy. On the left we have Mastercard's historical moat, their payment rails, the Mastercard network. That was the moat before. Mastercard said this is not good enough. A lot of things are coming to pressure this moat in and of itself.
35:16 We have other payment rails that are government-backed and being forced on consumers. We have the fact that there's government pressure in regulation and making it so that we can't charge as much for a payment network. And we have Visa which is much bigger than us. And Visa is going full-on on the payment network.
35:35 That's like what they're doing is they're sticking to this first level moat. Mastercard decided early on that they wanted to move into a different category. What they're moving into again is becoming that protocol of trust based off of the value added services that they offer right here. Cybersecurity, data analytics, consulting and fraud prevention.
36:00 That is the main thing that Mastercard offers. It is a value added services company with the global network as being a thing that kind of builds up that value added services. Now these networks do not go together. So the payment rails of Mastercard and the network of these real-time payment systems from the government, they are competitors.
36:21 But Mastercard is bridging this competitive gap by offering all these value added services that all of them go through. So the goal of Mastercard is not to have their network really compete with the government. That's a goal, but that's not their main focus. They're not just trying to go head first and blunt pressure into the government.
36:40 Instead, they're saying, "We want to be a partner. We want to help you out. You have a real problem with fraud. It's costing your economy. It's costing your consumers. It's costing lots of headaches and tragic results. And we have the technology. We have the know-how. We have the global scale to be able to really cut down on that fraud. We have cybersecurity.
36:56 We have data analytics. We know your customer. We can offer consulting to you as well to help." And they're doing a lot of things in the background to make that a business. So these new networks are saying, "You know what? Maybe we do build out the network, but we also just use a little bit of Mastercard services and a lot of the merchants are saying we'll use their services because we're sick of the fraud.
37:17 And so all of it comes down through these systems. And that's why the value added services are growing 20% per year. That's why the value added services are a massive business now doing $3.42 billion per quarter. We look at this on a trailing 12 months. Look at the value added services. It did $12.5 billion in the trailing 12 months, growing 20%.
37:40 It's faster growth than Google. It's faster than Netflix. This is a huge massive fast growing business. And that's because of this business overall shift from just being the payment company to battling for the new networks now being the trust layer in between. Now, there's other pressures on Mastercard.
38:03 I think one of them is just government regulation. That's going to put pressure on this kind of network, their first party network that they have. That'll put the profits down. And again, that's part of the reason, in fact, that I'd highlight that I'm more bullish on Mastercard than I am on Visa. I think over time that just having payment networks like your core rail, I think the government will continue to be like a python and just kind of squeeze on these networks.
38:31 I think they'll squeeze them and they're doing that with different laws. The credit card act or whatever it is, the debit card ones that restrict how much they can charge. So the government's going to squeeze down the margins of the traditional rail and you're going to see that with lots of legislation over the next 10 years.
38:49 Visa is doubling down on their core rail. And again, that's the part that I think the government's going to squeeze down upon. Mastercard is not really relying on that core rail. Instead, they're going into this type of stuff that the government loves. It's not as monopolistic looking. It's not as hated by merchants.
39:10 In fact, it's liked by merchants. Offering all these trust and safety protocols are very well-liked products by the government. It bridges the gap between the government and their core business, and they're not going to be as focused on squeezing the profits down on it. So I think that this type of stuff has faster growth ahead.
39:27 I think Mastercard is far more oriented towards the value added services than Visa. And I also believe that this type of stuff, the core business is going to be pressured down, but this will offset the growth. In terms of the super bear case for Mastercard, what I see happening is that it doesn't grow quite as fast as you think.
39:45 The government really goes more aggressively against their core business and it becomes more like a regulated utility company. So even in the worst situation with this company, my super bear case on it, I don't see immediate disruption. I don't see anything dramatic happening. There's no bad story here.
40:07 I just see the company moving into more of like a regulated utility company where the gains would be subpar and that'll be a slow burn. That'll be something that happens over the course of years. So you'll have time to identify that and move out of the stock. So again, the upside is really good.
40:23 We have a story of value added services massive company global growth. It's a company that's not a credit card company. It is a layer of trust protocol that the whole world needs and they've pivoted into that even faster than Visa. The downside, it's a regulated utility that's slowly slowing down in growth and you're probably not going to lose a lot of money on it.
40:44 Either way, I see far more upside than downside in the stock, especially given the selloff in it and the stock price which I bought. I'm up a bit in it now, but I think there's a lot more to go. So hopefully this addressed some of the concerns with the government pay systems, with crypto. Of course, there's a million other different potential concerns.
41:02 But those are the big ones. Those are, I think, the two biggest. Hopefully, this video was a bit informative. I'll do more deep dives on different companies just like this, but let me know what you think. Hope you enjoyed it.