Mastercard’s bullish on China, as long as there’s no pandemic

Progress in the trade war is welcome news for Mastercard’s ambitions in China, though the coronavirus jeopardizes the rosy outlook.

The card brand reports a substantial portion of its inbound and outbound payment flows in China are e-commerce, and thus not as prone to travel-related declines, which has hurt American Express’ stock performance in recent days. E-commerce is about 20% of the cross-border flows, which Mastercard positioned as a hedge against negative impact from the virus.

Mastercard projects double-digit growth for most cross-border payment corridors, China included, though that could change if the coronavirus gets worse, including an expansion to other countries. As of Wednesday, the coronavirus had surpassed the SARS outbreak.

“If it becomes a much bigger crisis then we’ll take a look at those numbers; have to take that as it comes, it’s the only way to look at this,” said Ajay Banga, president and CEO of Mastercard, during Wednesday’s earnings call.

Jason Alden/Bloomberg

For the quarter ending Dec. 31, Mastercard reported net income of $2.1 billion, or $2.07 per share. That’s more than double the prior year when Mastercard absorbed more than $750 in legal charges. Analysts’ expectations for the current quarter were earnings of $1.87 per share.

The coronavirus clouds positive developments in China. There’s been nominal progress in trade talks, but not enough to provide some clarity for U.S. payment firms that wish to set up a domestic payment market in China. China has traditionally wavered on opening to U.S. payment firms, so there’s reason for continued skepticism. Banga said he’s hopeful in this case.

“The trade deal itself is the first time I’ve seen companies mentioned by name,” Banga said. “I hope that means that most of us will get a chance to play in the domestic ecosystem.”

Once Mastercard opens a domestic processing business in China, it will face competition from the existing payment ecosystem, which is dominated by state-sponsored UnionPay, as well as fintechs that Banga said have a head start.

“We’re late to the party, the digital businesses have built good offers,” Banga said, adding local partnerships is one of many angles Mastercard is considering to build a market in China, including work with Alipay and other local Chinese companies. “The question is, how we break in and how we do well.”

To build scale, China is hiring staff to build scale and extending “work from home” benefits because of the pressure of coronavirus, Banga said.

Overall, Mastercard affirmed its 2020 outlook as similar to 2019, revenue growth in the low teens, with a slower growth rate in the first quarter but acceleration later in the year.

Banga also positioned Mastercard as ready to take advantage of open banking and digital ID, given its existing scale and network effect. Driven by PSD2, which requires banks to share data with fintechs such as third-party payment apps, open banking is picking up globally.

“We have solutions live in Europe and are making sure our system can support the real-time data exchange to protect all participants, “Banga said. “Open banking is another area where we are developing for the entire ecosystem, consumers, banks, businesses and fintechs.”

Mastercard is testing digital ID in Australia, a country at the forefront of digital ID, according to Banga, and the card brand will contribute to digital ID projects in other countries later this year. “Mastercard can check consumers' chosen credentials and confirm those credentials for that consumer’s chosen usage without taking possession of that data,” Banga said.