MasterCard Worldwide CEO Ajay Banga expressed concern about the effects of the Federal Reserve Board’s proposed debit-interchange rules, but he also sketched out various scenarios in which MasterCard may benefit during an analyst conference call to discuss fourth-quarter earnings.
Saying he is frustrated and “confused” by aspects of the Fed’s proposal, Banga told analysts during the Feb. 3 call he has paid several visits to regulators in Washington, D.C., in recent weeks “attempting to clarify” the potential effects of debit-interchange regulations on all players in the system.
“I don’t know if (the meetings with regulators) will lead to any change,” Banga said, noting that “99.9% of the company is focused on this as going through the way it is (proposed) right now.”
But the Fed’s proposed debit network-exclusivity rules in particular could weigh in MasterCard’s favor, Banga suggested.
It is difficult to tell which way the Fed will go between two proposed options when it finalizes network-exclusivity rules, Banga said. If the Fed requires issuers to offer debit cards with two unaffiliated signature- and two unaffiliated PIN-debit networks, it likely would result in marketplace confusion, he noted.
But if that scenario emerges, Banga expects MasterCard to “find a way to make an opportunity” from it.
MasterCard has struggled over the years to gain much more than a quarter of the U.S. signature-debit market with its debit MasterCard. When debit cards first were introduced in the U.S. market, MasterCard emphasized its Maestro PIN-debit offering, but most U.S. issuers flocked to Visa’s check card because of the potential for more interchange revenue from signature-debit transactions. Outside the U.S., however, Maestro is in a much better market position.
If the Fed opts to require that debit cards have one signature-debit network and one unaffiliated PIN network, “then I believe as the interchange (rate) converges that there is an increasing role for PIN-(debit),” Banga said. Because MasterCard owns Maestro, the dominant global PIN-debit brand, “I am very much willing to use our global schemes to play in that space,” he said.
Banga did not specify how MasterCard could leverage its Maestro brand in the U.S. to its advantage, but he cited MasterCard’s strength in PIN-debit operations and acknowledged that MasterCard “focused on PIN-debit in the U.S. for many years to our eventual cost–in some ways to our market share–with inadequate focus on signature debit.”
Regardless of how the final rules shake out, MasterCard is not likely to see any direct impact on its bottom line until 2012, Banga said.
Addressing the company’s spending volume during the fourth quarter, Banga told analysts he is particularly pleased with MasterCard’s recent performance overseas, including Europe, where the network “interestingly” saw double-digit volume growth during the quarter ended Dec. 31 (
“The U.S. economy continues to show some improvement,” Banga said, noting that the jobs and housing markets must first improve before MasterCard can expect to see solid gains.
MasterCard also announced it has capped its potential exposure in a long-running class-action lawsuit brought by merchants over interchange. In a Feb. 3 filing with the U.S. Securities and Exchange Commission, the company said it will pay 12% of any global settlement in the lawsuit, or 36% of a settlement involving only MasterCard and defendant banks involved in the case. No trial date has been set in the case.
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