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MasterCard Inc. will start charging a new acquirer licensing fee in July, the company confirmed with American Banker on Thursday.
February 23 -
The Durbin amendment has sapped debit card revenue, but swipe fees are contributing a growing share of earnings at large credit card businesses.
February 3 -
The credit card industry is inching closer to settling yet another challenge to its controversial interchange system, as MasterCard Inc. on Thursday reported setting aside $495 million tied to pending litigation.
February 2
MasterCard's (MA) first-quarter profit rose 21% from a year earlier, as the payments network picked up debit card business in the wake of new regulations.
The Durbin amendment of the Dodd-Frank Act capped debit interchange fees starting last October, and required banks to process debit cards over at least two networks starting April 1. That rule terminated some banks' exclusive debit processing contracts, and has long been expected to help MasterCard take some processing business from its larger rival Visa (V), which dominates the U.S. debit market.
On Wednesday, the Purchase, N.Y., company confirmed that it was starting to see some indirect benefits from the regulations.
"In the short term, we have roughly doubled our presence in U.S. debit cards and nearly tripled our share of U.S. PIN transactions" as a result of the new rules, Ajay Banga, MasterCard's chief executive, told analysts on an earnings conference call.
Gil Luria, a managing director at Wedbush Securities, says that "market share for processing debit transactions is shifting from Visa to MasterCard in pretty substantial numbers."
But he cautions that Visa knows how to compete long-term, and has "done a lot of things to hold onto its revenue, by raising rates and … [instituting a] fixed network participation fee to help them offset losses. So I wouldn't necessarily expect a big impact on revenue."
Banga said MasterCard is looking beyond its debit business for future growth, telling analysts to "move on from it."
"I view this as interesting, nice to have, worth showing we can win our share. … But move on from it. There's a lot more going on in our business that has greater impact than just the PIN debit business in the United States," Banga said later during the call.
He also cautioned that it is still early to know exactly how banks, merchants and payments vendors will ultimately adapt to the new rules.
"It's difficult to predict, given that we've just completed one part of the chess board game, which is getting ourselves on the back of the issuer cards," Banga said. "The second part is going on right now with the merchant acquirer incentive play."
Visa and MasterCard are jockeying for business from the acquirers who connect merchants to the payments system, and who often make the decisions about which network merchants use to process debit card transactions.
Visa announced last year that it would be introducing a fixed network fee to incentivize acquirers to route PIN debit transactions over its network,
"And then there will be a third part in a year or two which will be the increased impetus
MasterCard executives on Wednesday also said they were still examining a
"We are still working through the details. … But when we are looking at the published network fees, there seem to be some potential disconnects in the comparisons and we want to understand those before we draw any conclusions," Chief Financial Officer Martina Hund-Mejean told analysts during the conference call.
For example, the Federal Reserve compared network fees in the fourth quarter of 2011 to the full year 2009, according to Hund-Mejean.
"Any fourth quarter is usually a high-spend quarter. So issuers will pay effectively lower fees since core fees are tiered, based on volume," she said.
She also said that regulators asked for different categories of fees over the two time periods, "so therefore the network fees that have been compared in the report might be apples and oranges."
Hund-Mejean also warned analysts that MasterCard's strong quarterly performance may not continue at the same clip over the rest of the year, due in part to some one-time items in the first quarter, including tax refunds and the additional day of business provided by the leap year.
The number of worldwide processed transactions jumped 29% from a year earlier to 7.7 billion, and cross-border volumes grew 18%.
Luria credited some of MasterCard's growth to Europe,
"What continues to be surprising is how fast transactions are growing in Europe," he says. "Overall, our perception is that Europe is in crisis, when transaction volumes seem to indicate otherwise."
During the conference call, Banga attributed the company's growth in Europe to its expanding business in the Netherlands and elsewhere across the region, including Italy and Ireland.
"It does take a few quarters before changing consumer sentiment impacts our volumes in this region, and as such we are watching our European business very closely," Banga said.
First-quarter profits at MasterCard rose 21% to $682 million, and revenue grew 17% to $1.8 billion.