Mastercard braces for the Capital One/Discover deal

Mastercard
Lionel Ng/Bloomberg

UPDATE: This article includes executive and analyst commentary. 

As Capital One's agreement to buy Discover Financial Services nears possible approval, Mastercard contends the introduction of a major new competitor should not dramatically impact its business.

Mastercard has several payment partnerships with Capital One, including processing Capital One debit cards, a business that may migrate to Discover's debit network.

"There's great momentum in debit that we have created in the U.S., [Capital One] isn't the only debit partner that we have," said Michael Miebach, CEO of Mastercard during Thursday's earnings call, noting Capital One has signaled it will move its debit card processing to Discover's rival network.

Capital One plans to acquire Discover for $35 billion, a purchase that is awaiting regulatory approval in a Trump-influenced political environment that's expected to be more friendly to M&A than the Biden administration.

A combination of Discover and Capital One would create one of the largest card networks in the U.S., creating more competition for Visa and Mastercard. That should not impact other parts of Mastercard's work with Capital One, and Mastercard noted its outlook for 2025 takes the combination of Capital One and Discover into account.

"There is a whole range of examples where we have partners that we compete with in some parts of our business," Miebach said. "Capital One is a tremendous partner for us. We value this partnership and will continue to align with them."

Tariff troubles?

Analysts asked Miebach about the impact of Donald Trump's threat to impose wide-ranging tariffs.

"It's a question that is top of mind in many industries," Miebach said. "There is some political uncertainty."

The Trump administration has signaled that it will be mostly "pro business," Miebach said, adding any impact of tariffs would be indirect.

"We're not in the import-export business," he said.

In recent remarks, Federal Reserve Governor Christopher Waller said Trump's tariffs could pressure prices. But the results would likely be a one-time price hike rather than sustained inflation. Waller also said it's still uncertain what countries could be hit with tariffs and the size, scope and duration — adding he does not expect the policies to be "draconian." 

Mastercard's earnings

Mastercard's focus on product expansion is showing results in the card network's earnings growth.

For the quarter ended Dec. 31, Mastercard reported net income of $3.34 billion, up about 20% from the prior year. Adjusted for nonrecurring costs, earnings were $3.82 per share, also up about 20%, and revenue was $7.49 billion, up 14%. 

Those results were better than Wall Street analyst expectations of $7.38 billion in revenue and adjusted earnings per share of $3.68, according to a Zacks Investment Research survey.  

Cross-border volume growth topped estimates for the three-month period, growing 20% on a local-currency basis, compared with a 17.5% estimate. Global purchase volume was $2.11 trillion, in line with Wall Street estimates. 

For the full year, the card network reported profits of $12.87 billion, EPS of $13.89 and revenue of $28.17 billion. Zacks had estimated revenue of $28.06 billion. For 2025, Mastercard projected revenue growth at the high end of low double digits, not consumer spending trends, macroeconomic environment and early year trends. 

 "Our diverse capabilities in payments and services and solutions — including the acquisition of Recorded Future this quarter — set us apart and position us well for long-term growth as we outlined at our Investor Day," Miebach said in prepared remarks. Recorded Future is a cybersecurity firm.

Mastercard's stock was up about 4% on Thursday morning. 

 Mastercard is in the midst of diversifying its revenue streams beyond payment processing as competition, legal and regulatory battles pressure revenue from card fees.

The card brand is investing in new products to expand its addressable market. In the fourth quarter, that strategy included the $2.7 billion acquisition of Recorded Future, and the purchase of Minna Technologies, a subscription insights company.

Finding ways to leverage distributed ledger technology, the type of platform that supports many cryptocurrencies, has been a major part of the strategy. Mastercard in late 2024 connected its multitoken network to JPMorgan's Kinexys Digital Payments, a payment rail that powers real-time transfers through Kinexys, the bank's blockchain business unit. It's similar to the decentralized processing model that supports bitcoin and other cryptocurrencies but can also be used to streamline transactions with parties using different currencies.

"This partnership brings greater transparency and settlement capabilities," Miebach said during Thursday's earnings call. 

In another major bank partnership, the company inked a global payments partnership with Citigroup that allows the mega-bank to connect with its Mastercard Move product to move money domestically and across borders to bank accounts, prepaid debit cards, mobile wallets and cash-access locations in a few seconds.

"We continue to view value-added services as a linchpin of durable above-average organic revenue growth and competitive advantage," research firm William Blair said in an analyst note, noting revenues from value-added services rose 17% in 2024 versus 15% in 2023, placing VAS on pace to compose 50% of Mastercard's total revenue by 2030. 

Mastercard in recent months also settled a collective card fee lawsuit in London. The settlement was about 200 million pounds ($254.2 million). The lawsuit was brought by Walter Merricks on behalf of 46 million U.K. adults. Originally, claimants had said damages were as much as 10 billion pounds. The settlement marked the end of nine years of litigation between Merricks and Mastercard, Merricks said in a statement.

Mastercard and Visa have been battling a slew of lawsuits over the amount they charge for card fees. The payment-processing giants in March agreed to settle a 20-year U.S. suit over interchange fees, only to later have the settlement struck down in June by a federal judge. Mastercard in 2024 additionally laid off about 3% of its staff by September as part of a restructuring. Other 2024 moves included adding partners in its push for open banking. The card brand additionally partnered with the Medical Tourism Association to provide virtual card technology for arranging treatment, booking travel and making payments.

"This was a solid quarter for Mastercard," said research firm Edward Jones in an analyst note. "Further, spending trends through the first three weeks of January showed consistent growth in line with results this quarter. These steady results should be well received by investors, as it demonstrates the continued strength of consumer spending. It further supports the view that the overall economy will achieve a soft landing and that a substantial slowdown will largely be avoided."

Among other major credit card companies, American Express last week reported earnings in line with analysts' expectations. Visa reports earnings later today. 

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