With FedNow finally having a scheduled launch date after years of development, the top executives at Visa and Mastercard this week found themselves defending their companies' strategies against the threat of the government-backed payment system.
The Federal Reserve's instant settlement network, set to launch in July, most directly competes against faster payment systems like Mastercard Send and Visa Direct. But that's not a bad thing, according to Michael Miebach, Mastercard's chief executive.
"Competition makes us a better company," Miebach said during a Thursday-morning earnings call.
For the quarter ending March 31, Mastercard reported revenue of $5.7 billion, up from about $4.95 billion the prior year and ahead of analysts' expectations of $5.64 billion. Earnings per share were $2.80, up from about $2.70 the prior year and better than analysts projections of $2.71, according to Zacks Research. "Consumer spending has proven to be remarkably resilient," Miebach said.
Mastercard faced analyst questions about FedNow after its prepared remarks. While reiterating that Mastercard supports and will support a variety of real-time payment networks, Miebach also drew a competitive comparison with FedNow.
"We have alternatives that will be in the market to capture new payment flows," Miebach said. "There will be opportunities out there to compete in [real time]. We'll see how this will play out."
Part of that competitive response could come from open banking. During his presentation, Miebach stressed that Mastercard's non-payment fee revenue is increasingly drawn from open banking, which can contribute to faster payment execution. Open banking uses data sharing tools, generally application programming interfaces, to allow users to access services from multiple companies through a single financial relationship. Mastercard recently added its open banking technology to its
Mastercard recently launched
"Mastercard's real-time credit-push systems enjoy powerful global brands and network reach and are nearing genuine ubiquity planetwide," said Eric Grover, a principal at Intrepid Ventures.
Mastercard also supports real-time payments in the U.S. and other markets through services such as
Both Visa and Mastercard this week expressed broad support for FedNow while stressing their own companies would not suffer due to the presence of a public option for real-time payments.
Grover agreed that the card networks are in a good position to enroll merchants in real-time payments. "In a great many cases, plugging into Visa and/or Mastercard is the fastest path to harness instant payments for a fintech, money-transfer network, digital wallet, marketplace, merchant processor and others," he said.
FedNow will be available to nearly 9,000 U.S.-based financial institutions that have relationships with the Federal Reserve, though deployment is expected to take time. The network will also need adoption. There are differences in messaging protocols and structure between FedNow and RTP that will have to be addressed, as well as the ability of both FedNow and RTP to work with real-time payment networks in other countries.
"The FedNow service will provide banks with choice in instant payment services,generating competition that can result in efficiencies related to pricing, service quality and innovation," Federal Reserve Financial Services said in an email.
"A technical 'go live' is different from being available for consumers and merchants, and knowing what the features will be," Miebach said. "And knowing what the user experience will be and so forth."
Like Visa,
The card network's revenue benefits from travel and entertainment spending's reemergence from pandemic slowdowns, Zacks reported in a research note. Cross-border travel spending volume is at 148% percent of 2019's level, and all regions are above 2019 levels, Mastercard reported, suggesting a full recovery from the pandemic-related travel slowdown of 2020. "The reopening of China will be a catalyst," Miebach said.
Looking ahead, Mastercard noted some moderation in U.S. spending due to lower tax refunds, but a large boost in cross-border payments due to growth of travel. That led the card network to project net revenue growth in the low teens for the full year 2023. Mastercard also affirmed its full-year spending will grow in the high single digits.
In a research note, Jeffries analysts said April month-to-date trends are encouraging for Mastercard, with cross-border payment volume in particular accelerating 30% year over year. Mastercard reported earnings as the U.S. Department of Commerce reported gross domestic product grew 1.1%, below the prior quarter's 2.6%, indicating a slower economy.
"We are actively managing the business to capitalize on the significant digital payment and services opportunities ahead, and stand ready to navigate through any headwinds," Miebach said.
