MasterCard Inc.'s credit card transactions are not being cannibalized by the growth in debit card use, according to Chris McWilton, its president of U.S. markets.
"There is a myth that debit is displacing credit," McWilton told analysts Wednesday at the Credit Suisse Financial Services Forum in Miami.
"Debit is growing significantly, but not at the expense of credit; it's at the expense of cash and check."
MasterCard's fourth-quarter results, reported last week, showed that debit volume rose 10.4%, while credit volume shrank 7.5%.
Research MasterCard conducted last year suggested that about half of consumers use a debit card for everyday purchases such as groceries, gas and dining out, while about 11% use a credit card for those same types of purchases, McWilton said.
Though debit card use has climbed about 18% over the past two years for everyday purchases, the proportion of consumers using a credit card for everyday purchases is holding steady. The use of cash for such purchases has fallen about 14%, and the use of checks for everyday purchases has declined by 5%, McWilton said.
"We find it encouraging that debit is an incremental growth, and not simply a cannibalization of existing programs," he said.
Though the economic downturn last year caused "shock and awe" for many card issuers, this year MasterCard is seeing an uptick in card use, McWilton said. Of particular interest is a rebound in luxury spending for jewelry, furniture and apparel, and healthy growth in travel, McWilton said.
MasterCard e-commerce transaction volume rose 15.1% in January, and McWilton said online shopping is showing "very rapid growth" that he expects to continue this year.
MasterCard found that overall card-purchase volume started "coming out of the doldrums" in the second half of last year, and it will probably be "the back half of 2010 before things get churning again," McWilton said.
He also said that competition with larger rival Visa Inc. to sign up card issuers hasn't reached "irrational" levels. "There is no price war going on."
Investors were "caught off guard" last week when MasterCard said during its earnings call that rebates and incentives associated with new and renewed customer agreements climbed 35% in the fourth quarter from a year earlier, R.W. Baird & Co. analyst David Koning wrote in research note. MasterCard shares plunged 10.3% last week as profit fell short of most Wall Street estimates, while Visa reported earnings that exceeded forecasts.
MasterCard is seeking to woo banks away from Visa, which is gaining market share at a faster pace. Transactions processed by MasterCard rose 6.7%, to 5.9 billion, during the fourth quarter, compared with a 12% increase, to 10.9 billion, for Visa. (Visa spokesman Will Valentine declined to comment.)
FirstMerit Corp., a bank holding company in Akron, is switching about 675,000 Visa accounts to MasterCard, McWilton said at the conference; SunTrust Banks Inc. said last month that it would convert its debit card program, with 5 million customers, to MasterCard, which lost more than half of a $59 billion portfolio of U.S. debit users last year after JPMorgan Chase & Co. decided to shift more business to Visa.
Both payments networks are benefiting from consumers' increased shift to plastic. Card transactions were projected to exceed cash and checks for the first time in 2009, according to industry reports.
