Nov. 1 (Bloomberg) -- MasterCard Inc., the second-biggest credit-card company, said third-quarter profit topped analysts' estimates after increasing fees and enticing customers to use the cards for smaller purchases.

Net income climbed 82 percent to $193 million, or $1.42 a share, from $106.1 million, or 79 cents, a year earlier, the Purchase, New York-based company said today. It was expected to earn $1.07 a share, the average estimate of 15 analysts surveyed by Thomson Financial.

MasterCard shares rose the most since the company's initial public offering five months ago. Cardholders increased their spending by 15 percent to $502 billion during the quarter. Chief Executive Officer Robert Selander has focused on getting clients to abandon cash and checks for everyday purchases at fast-food restaurants and other businesses in favor of the company's PayPass card that doesn't require a signature.

``The numbers are very powerful,'' said Moshe Katri, an analyst at Cowen & Co. in New York, whose $1.26 per share estimate was the highest in the Thomson survey. ``We're seeing very strong volume growth and a significant decline in advertising expenses.''

MasterCard's stock rose $10.97, or 15 percent, to $85.07 in New York Stock Exchange composite trading. The shares gained 18 percent on their first day of trading on May 25. The share sale, which amounted to a 46 percent stake, raised $2.39 billion. The proceeds were used to buy out 1,400 financial institutions that owned the company.

Revenue Climbs

Revenue increased 14 percent to $902 million, aided by new prices the company set on purchases made abroad. MasterCard on April 1 began charging card issuers for all foreign transactions using U.S.-issued cards. It used to assess a fee only if it converted the related currency to U.S. dollars.

The number of transactions processed in the quarter rose 19 percent. More than 32,000 merchant locations in the U.S. have installed PayPass readers, which allow customers to flash their cards to make purchases at gas stations, convenience stores and other retail outlets, Selander said in an interview today. During the quarter, MasterCard reached PayPass partnership agreements with financial institutions in Turkey and Mexico, he said.

MasterCard, which collects fees from retailers on transactions that move through its network, had 818 million cards in use as of Sept. 30, up 13 percent from a year ago, the company said. Top-ranked Visa has 1.46 billion cards in circulation, according to its Web site.

Visa IPO

Credit-card operations buoyed profit at U.S. commercial banks in the third quarter, particularly at Citigroup Inc. and Bank of America Corp., the two largest. Banks without major credit-card operations, including Fifth Third Bancorp., BB&T Corp. and Comerica Inc., said earnings fell as rising short-term interest rates made lending less profitable.

Visa said last month it will combine all its businesses excluding Western Europe into Visa Inc. and sell a majority of the new company to the public. The company expects the reorganization to take 12 to 18 months.

``Our IPO was an industry-defining event and I'm glad we were the ones who defined it,'' Selander said in the interview. ``It's a competitive world out there and I presume Visa is hoping to make themselves more competitive. We'll just have to keep running faster than they are to help us pull away.''

MasterCard's operating expenses fell 2.6 percent to $627 million, helped by a 4.6 percent drop in spending on advertising. Credit Suisse analyst Moshe Orenbuch estimated MasterCard's expenses at $648 million. Excluding litigation settlements and an accounting change related to executive incentive plans in the year-ago quarter, expenses rose 8.8 percent.

Job Cuts

The company is ``severing'' more employees than it previously planned, Chief Financial Officer Chris McWilton said on a conference call with investors today. Even so, the company's headcount at the end of the year will be higher than a year ago because of additional hires, he said. He declined to say how many positions were eliminated. MasterCard had 4,300 employees at the end of last year.

MasterCard shifted some of its marketing dollars into the first half of the year in advance of the World Cup soccer tournament. Ad spending in the current quarter will be lower than last year, McWilton said on the call.

Pending Lawsuits

Merchants have filed lawsuits against MasterCard and Visa, claiming they colluded with their partner banks to fix prices on interchange rates, or fees paid by retailers' banks to cardholder-issuing banks. Banks pass on those fees to merchants to complete consumer purchases. The credit-card companies have denied price-fixing and urged Congress to reject demands for a cap on fees. In recent weeks, the companies began disclosing interchange rates on their Web sites in a bid to be more transparent.

American Express Co. and Discover Financial Services, a unit of Morgan Stanley, have also sued MasterCard and Visa for imposing rules that barred thousands of banks from issuing their credit cards.

Selander said the lawsuits filed by the merchants and the card companies are ``working their way through the court system.''

MasterCard and Visa in July agreed to settle antitrust lawsuits over currency conversion fees charged on foreign transactions. The suits involved claims the credit card companies failed to disclose fees of up to three percent on purchases made in foreign currencies. MasterCard's share of the settlement came to $72.5 million.

To contact the reporter on this story: Will Edwards in Charlotte, North Carolina, at wiedwards@bloomberg.net.

Last Updated: November 1, 2006 16:23 EST