As the global economy continues its uneven recovery, MasterCard Worldwide is aiming to continue driving growth by targeting affluent customers and mainstream audiences in emerging economies around the globe, Ajay Banga, MasterCard’s president and CEO, told analysts Nov. 2 during a conference call to discuss the company’s third-quarter earnings.
Card spending in Asian and Latin American economies showed solid growth during the quarter ended Sept. 30, while spending in the U.S. and Europe continued to lag, Banga said (
The U.S. market is “looking healthier” than it did at this time a year ago, but the domestic economy continues to show “conflicting signals” in terms of rebounding, Banga said, saying he does not expect to see significant economic improvements until the second half of next year.
One exception is the U.S. commercial card sector, which is driving stronger growth than the consumer sector as U.S. business travel begins to rebound, Banga said.
MasterCard also is having some improved luck securing U.S. debit card issuers. The company recently won Boston-based Sovereign Bank’s 2 million-account debit card portfolio, Banga announced during the call. Sovereign is a unit of Santander Holdings USA Inc.
The company also is succeeding in targeting more-affluent cardholders around the world with new products, Banga said. Examples include a new World MasterCard UBS Wealth Management credit card recently announced for its clients in Switzerland and U.S.-based Morgan Stanley Smith Barney’s plans to launch a debit card for its wealth management clients.
MasterCard continues to experiment with mobile and prepaid card offerings in the U.S. and abroad, Banga said.
During the first quarter of 2011, MasterCard plans to conduct a mobile-payment pilot with a major U.S. bank during which consumers may make purchases with mobile phones equipped with microSD technology, Banga said. He did not name the issuer.
Because the trial involves the SIM cards of consumers’ phones, the trial will be a “kind of a big step” for MasterCard, with “financial capabilities baked into the latest, most sophisticated mobile phones,” Banga said, noting MasterCard is “trying to do a number of these (trials) to test the market.”
In Poland, MasterCard also is piloting a chip-enabled prepaid card soccer fans may use to pay for rapid transit to get to the stadium, entry to the game and to purchase concessions inside the stadium, Banga said.
Growth of prepaid and other new products may enable MasterCard to capture significant growth in such electronic transactions that are rapidly expanding in emerging markets around the globe, Banga said.
According to Banga, “a number of central banks and governments in these emerging markets are actually key to driving down the use of cash, to improve the transparency of their economy and their tax revenue.”
Banga could not predict the effect new debit card interchange rules dictated by the Durbin Amendment within the Dodd-Frank Act could have on MasterCard. He noted that MasterCard continues to have “constructive dialogue” with regulators about the situation, and he expects the Federal Reserve Board will announce proposed final rules next month.
Alluding to the so-called exclusivity provision within the legislation requiring debit card issuers to provide merchants with more than one network choice for processing transactions (
“Given our U.S. debit (card market) share and that some level of exclusivity will go over it, we see outside potential for MasterCard,” Banga said.
Asked to clarify how MasterCard plans to negotiate with banks to increase its market share and role in transaction routing, Banga suggested the company might sweeten its deals for banks. “Even to get merchants to give preferred routing will require a combination of value-added products that they, in turn, perceive as important to them, as well as some pricing benefits,” he said.
At least one analyst suggests MasterCard is on the right track by diversifying globally.
“Although the economics of card issuing are facing serious pressures in key markets like the U.S. and Europe from governing bodies, the considerable opportunities to displace cash and checks around the world continue to offer dramatic opportunities for the industry, including card networks like MasterCard,” Gwenn Bézard, research director with Aite Group, said in a statement. “The key to long-term growth for the networks will be to make sure they position themselves for growth globally and don’t fall back on their U.S. comfort zone.”
Banga’s increasingly international focus “is likely to give MasterCard an edge over competitors by more squarely focusing the firm on growing outside the United States,” he said.
However, during Visa Inc.’s quarterly conference call last week, executives at the card brand similarly set their sights on growth internationally (
MasterCard reported net income of $518 million for the third quarter ended Sept. 30, up 14.6% from $452 million during the same period last year. Net revenues rose 5.1%, to $1.43 billion from $1.36 billion (
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