MasterCard Posts Higher Income as Market Share Increases

MasterCard Profit Increases as Network Boosts Market Share
MasterCard Inc. reported a 21 percent increase in first-quarter profit as card spending rose and the firm took a bigger share of the market. Photographer: Daniel Acker/Bloomberg

MasterCard Inc., the world’s second-biggest payments network, posted a 21 percent increase in first-quarter profit as card spending rose and the firm took a bigger share of the market.

Net income advanced to $682 million, or $5.36 a share, from $562 million, or $4.29, in the same period a year earlier, the Purchase, New York-based company said today in a statement. While results beat most Wall Street estimates, reports on employment and jobless rates in the U.S. and Europe weighed on financial markets, and MasterCard shares slid 1.9 percent.

Chief Executive Officer Ajay Banga is boosting profit as consumers worldwide shift from cash and checks to electronic payments. MasterCard said net revenue increased 17 percent to $1.8 billion, aided by a 29 percent gain in processed transactions, the fastest growth since the company’s 2006 initial public offering.

While there’s “no shortage of growth opportunities in this business,” Banga said revenue will rise more slowly during the rest of the year, and he acknowledged renewed concern about consumer confidence in the euro zone. “We’re watching our European business very closely,” Banga, 52, told analysts during a conference call.

Market Share

U.S. limits on debit-card transaction fees and processing that took effect on Oct. 1 may have helped MasterCard wrest market share from San Francisco-based Visa Inc., which handled more than triple the amount of such purchases than its smaller rival in the fiscal year ended Sept. 30. MasterCard has won deals to handle processing of PIN-debit transactions “with a couple of major U.S. banks,” Banga said Feb. 2.

One of those lenders is Charlotte, North Carolina-based Bank of America Corp., the biggest U.S. debit-card issuer by purchases, Tien-tsin Huang, a JPMorgan Chase & Co. analyst, said yesterday in a research note. MasterCard also has sought to win business from smaller lenders that are exempt from the debit rules, including community banks and credit unions.

“While the top 25 banks in the U.S. do get spoken of most often, we all know that independent banks and credit unions are important,” Banga said in February. “We signed debit and credit deals with almost 150 of these issuers. And importantly, a good proportion of these deals were conversions from competition.”

Visa’s share of worldwide purchase transactions on both credit and debit cards, including those processed by Visa Europe Ltd., fell 1.1 percentage points last year to 64.67 percent as MasterCard’s share grew by almost half of a percentage point to 25.57 percent, according to the Nilson Report, an industry newsletter based in Carpinteria, California.

Stock Price

MasterCard shares dropped $8.67 to $447.23 at 11:06 a.m. in New York. The stock gained 22 percent this year through yesterday, compared with Visa’s 19 percent advance. The firm doubled the quarterly dividend to 30 cents in February after the stock surged 66 percent last year, the fourth-best performance in the Standard & Poor’s 500 Index.

Financial firms with consumer businesses slid after reports released today showed U.S. companies added the fewest number of workers in seven months in April, and that euro-region unemployment rose to a 15-year high and manufacturing contracted for a ninth month.

“These are some pretty tough times over in Europe,” Chief Financial Officer Martina Hund-Mejean said today in a telephone interview. “I watch consumer confidence like a hawk because I know if consumer confidence goes, two or three quarters down the road, we will feel it in our numbers.”

MasterCard has repurchased about $300 million of its stock, at an average price of $387 per share, so far this year, and still has $550 million of potential repurchases authorized before considering another program, Hund-Mejean said.

Visa, which reports fiscal second-quarter results after U.S. markets close today, dropped 1.5 percent to $121.26. Wells Fargo & Co. fell 1.7 percent and JPMorgan Chase & Co. declined 1.6 percent.


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