MasterCard Worldwide will offer special incentives to certain merchants to offset the effects of new Federal Reserve Board rules requiring debit cards to carry at least two card-network brands in contrast to Visa’s plan to offer broad merchant incentives, Ajay Banga, MasterCard chairman and CEO, told analysts Nov. 2.
“I will do these selectively with certain merchants where I believe it makes a difference to the kind of volume that we get on our debit business,” Banga told analysts during a conference call to discuss the company’s third-quarter earnings. MasterCard is “in a completely different competitive situation from others in the debit space” and needs not to defend “a large incumbent position,” he said.
Visa on Oct. 26 said it will unveil new pricing and incentives for merchant acquirers aimed at maintaining its large share–traditionally about 75% to 80%–of overall of U.S. debit card transactions (
Banga did not elaborate on pricing deals MasterCard will offer to merchants, acquirers and processors when the Fed’s rule goes into effect April 1.
“A deal-specific approach is what we believe is needed to give us the flexibility to navigate the complexities of our PIN enablement and routing that exist in the market right now,” Banga said.
It is too soon to see the effects on the U.S. debit card industry of the Fed’s reduced debit-interchange rates that went into effect Oct. 1, he told analysts. The new rates essentially cut in half the amount issuers earn on average in debit interchange.
“This whole debit environment is still moving around,” Banga said, adding it is not surprising that banks are exploring changes in their fees and pricing in response.
Banga suggested banks will continue to experiment with new fees when asked about the brouhaha surrounding Bank of America Corp.’s proposed $5 monthly debit fee, which the issuer withdrew Nov. 1 (
“If you think about it, it's a fair amount of revenue that is moving from them to some of the retailers over this period of time,” he said. “They're going to try and find ways to make sense ... (and) look at every single line item from the cost of running a branch to the cost of rewards to checking accounts.”
MasterCard during the quarter ended Sept. 30 posted healthy gains in its debit and credit purchase volume in all regions, helped by recent debit portfolio wins in the U.S. and abroad.
Despite unemployment and a weak housing market, “we are still seeing the consumers spend,” Banga said.
MasterCard’s Oct. 27 announcement of its win of Huntington Bancshares Inc.’s debit portfolio is a significant example of the firm’s recent success (
MasterCard also recently inked significant new debit and prepaid card deals in Italy and India, he added.
In the United Arab Emirates, MasterCard is working with the country’s leading telecommunication company, Etisalat, on a contactless mobile-payment service that will launch in the first quarter of 2012, Banga said.
MasterCard saw its strongest purchase-volume gains in Latin America and the Asia Pacific, Middle East and Africa regions, he noted.
U.S. credit card sales volume during the quarter rose 6.6%, to $130 billion from $122 billion, while total U.S. credit card transaction volume rose incrementally to 1.56 billion from 1.5 billion.
Credit card purchase volume outside the U.S. rose 27%, to $339 billion from $267 billion, while total credit card transaction volume abroad rose 15.2%, to 3.8 billion from 3.3 billion.
U.S. debit card purchase volume rose 22.8%, to $97 billion from $79 billion, while total U.S. debit card transaction volume rose 19%, to 2.5 billion from 2.1 billion. Debit card sales volume outside the U.S. rose 34.8% to $62 billion from $46 billion, while total debit transaction volume abroad rose 30.5%, to 1.1 billion from 843 million.
In Europe, credit and debit sales volume rose 20.1%, to $185 billion from $154 billion.
In the Asia Pacific, Middle East and Africa region, credit and debit sales volume rose 38.5% to $144 billion from $104 billion.
In Latin America, credit and debit sales volume rose, 38.7% to $43 billion from $31 billion.
In Canada, credit and debit sales volume rose 16.7%, to $28 billion from $24 billion.
MasterCard reported net income for the quarter of $717 million, up 38.4% from $518 million a year earlier. Net revenues rose 28.6%, to $1.8 billion from $1.4 billion. Operating expenses rose 23.3%, to $816 million from $662 million.
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