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This story appears in the May 2009 issue of Cards&Payments.
MasterCard Worldwide continued to crank out overall debit card payment-volume growth in 2008, but legal issues and the U.S. economic slowdown hurt its overall performance.
In its second full year as an independent company following its initial public offering in 2006, MasterCard finally resolved some long-simmering legal issues.
The company in June reached an agreement to pay American Express Co. up to $1.8 billion to settle an antitrust case dating back to 2004. AmEx's suit, filed in 2004, alleged that MasterCard's and Visa's exclusionary rules prohibiting U.S. financial intuitions from issuing cards on its network hurt its growth opportunities. MasterCard said it would pay the settlement amount in quarterly installments over the next three years.
MasterCard and Visa Inc. reached an agreement to settle Discover Financial Services' similar antitrust suit dating back to 2004 and to share settlement costs. MasterCard's share of the $2.75 billion settlement was $827.5 million, including $35 million Morgan Stanley, Discover's former parent, agreed to pay MasterCard as part of the deal.
MasterCard began to feel the effects of the U.S. real estate crisis in mid-2008, when analysts noted that issuers were significantly tightened credit card underwriting standards in response to rising charge-offs. As conditions deteriorated, many issuers began closing inactive accounts and reduced credit limits. The combination of lower overall consumer spending and tightening credit standards dented MasterCard's overall purchase volume on credit and debit cards, analysts say.
Purchase volume for MasterCard's credit and charge cards totaled $547 billion in 2008, down 0.2% from $548 billion in 2007. Total credit and charge cards issued declined 5.7%, to 263 million from 279 million (
Net revenues last year were $4.9 billion, up 22.5% from $4 billion in 2007. MasterCard reported a net loss of $253.9 million in 2008 compared with profit of $1.1 billion in 2007, primarily because of legal settlement payouts.
MasterCard reported progress in the distribution of its PayPass contactless cards and tokens, which it says soared from 20 million at the beginning of the year to about 50 million devices worldwide at the end of December. Widespread retail point-of-sale acceptance was still lacking, but MasterCard executives continue to support contactless in hopes that it will play a key role in the payments industry's migration to alternative and mobile technologies.
Corporate and business-to-business payments were another area of solid growth for MasterCard, as Citigroup Inc. in October announced it had adopted the MasterCard Payment Gateway system. MasterCard's payment hub is designed to enable corporate customers to integrate commercial card payments more easily into overall electronic payment systems. MasterCard says it continues to notch gains in commercial and small-business card growth, although it does not break out those results separately.
Sanjay Sakhrani, an equity analyst with the securities investment firm Keefe, Bruyette & Woods, says while consumer credit card spending is down, MasterCard is at a slight disadvantage compared with Visa Inc. in debit growth. "Credit volume is down, but debit card usage continues to grow, and in this area MasterCard is a step behind Visa," he says. "(MasterCard) needs to branch out into other areas and attack debit in the U.S." CP
