Citigroup reached a deal to issue most of its global consumer credit and debit cards on MasterCard's network.
As part of a 10-year agreement, New York-based Citigroup will start to shift more of its consumer business to MasterCard this year, the companies said Wednesday. The bank said it will continue to issue co-brand and commercial cards on other networks. The terms weren't disclosed.
"This is a big conversion and it's one that will happen over the course of several years," Jud Linville, who runs Citigroup's credit-card business, said in a telephone interview. "Deals like this are a milestone achievement."
The agreement could result in as much as $125 million in annual revenue shifting to MasterCard from larger competitor Visa Inc., adding as much as 8 cents a share in annual earnings, according to Darrin Peller, a Barclays Plc analyst. Sanford C. Bernstein & Co.'s Lisa Ellis estimated Visa may see as much as 4% of its revenue move to MasterCard. Visa posted $12.7 billion of net revenue in the fiscal year ended Sept. 30.
"Any win is a good win, any loss is a bad loss," Ellis said in a phone interview. "Visa and MasterCard operate like you would expect a well-disciplined duopoly to act. It's very typical to see this dynamic of tit-for-tat."
When banks strike issuing deals with payments networks, the agreements typically include rebates and incentives, funded by the network, and shared marketing costs. While Purchase, N.Y.-based MasterCard stands to benefit from additional card volume, costs will also probably increase, Peller said.
"In the near-term, there's a negative around an increase in rebates and incentives for MasterCard," Peller said in a telephone interview.
MasterCard gained 0.5% to $91.41 at 11:37 a.m. in New York, while Visa slid 0.7% and Citigroup dropped 0.2%.
"We will be picking up a lot more volume," MasterCard President Chris McWilton said in a phone interview, declining to provide specific figures. "For us, it's a real jewel."
JPMorgan Chase, the biggest U.S. credit-card lender, reached a similar agreement in 2013 with Visa. That deal included shifting more of JPMorgan's consumer card volume in the U.S. to Visa from MasterCard, as well as developing an exclusive processing service that allows the bank to negotiate deals directly with merchants.
About 20% of JPMorgan's portfolio was up for grabs at the time significantly more than what MasterCard stands to gain from Citigroup, according to Christopher Donat, a Sandler O'Neill & Partners analyst.
"Most of Citi's cards are already MasterCard-branded," Donat said in a phone interview. "It is definitely important for MasterCard that they got Citi locked-in for 10 years, but this is not as big as the Chase announcement was."