MasterCard: Steady as She Goes

  The year 2003 may not have been a spectacular one for MasterCard International, but it was far from a bust. Despite a sluggish economy and geopolitical instability, the association put in a solid performance. Indeed, it managed to post double-digit gains in key categories, including some traditionally dominated by cash and checks.
  MasterCard's U.S. receivables at year-end stood at $293.2 billion, up 3.4% from $283.6 billion in 2002. The number of MasterCard-branded credit cards in circulation in the U.S. rose 1.9% to 272.6 million from 266.9 million cards in 2002. The number of MasterCard debit cards issued in the U.S. increased 10.6% to 53.4 million.
  MasterCard reported U.S. credit card gross dollar volume of $514.6 billion, up 6%. Purchases grew 8%.
  "That kind of purchase volume growth ... obviously is a major contributor to MasterCard International's revenue growth of 18% year-over-year," says Ruth Ann Marshall, MasterCard's president of the Americas. The U.S. market accounts for 60% of MasterCard's business.
  Part of that growth comes as a result of MasterCard (and other card brands) making major inroads into markets traditionally dominated by cash and checks. "For the first time last year, cards-both credit and debit-overtook cash and checks for in-store purchases," Marshall says. Cards accounted for 52% of in-store sales, compared with 43% five years ago, she says.
  Quick-service restaurants were among categories in which MasterCard took share from cash and checks. MasterCard saw an 85% increase in the number of transactions at QSRs, a 91% increase in dollar volume, and a 52% increase in merchant locations.
  At year-end, MasterCard had 22 million locations worldwide. MasterCard in 2003 revised the criteria for counting acceptance locations. Under new criteria, acceptance locations include merchants, automated teller machines and other locations where cash may be obtained.
  MasterCard continued to invest in promoting its products, although not as heavily as in 2002. Expenses for advertising and marketing development accounted for 30% of MasterCard's operating expenses of $2.8 billion in 2003, down from 40% of operating expenses in 2002.
  MasterCard's share of direct-mail solicitations averaged 57% through November 2003, according to Synovate's Mail Monitor. It marks the fifth year in which MasterCard's mail share has topped 50%. Mail share is considered a leading indicator of card growth.
  Legal expenses took another big chunk out of MasterCard's bottom line last year: a $763 million charge stemming from the $1 billion settlement in the merchant class-action lawsuit challenging MasterCard's honor-all-cards policy.
  For 2003, parent company MasterCard Inc. reported a loss of $385.8 million. That compares with earnings of $116.4 million for the year earlier.
  "I was glad to have (the merchant case) behind us so we could put our focus back on growing the business," Marshall says.
  Looking ahead, Marshall says she sees several possible trouble spots, including more lawsuits.
  Continued consolidation of the industry is another concern, particularly when it involves giants such as Bank One and J.P. Morgan Chase. It raises the questions of "who's buying whom, who are they aligned with and what might that mean for the organization," she says.
  But the greatest concern of all for 2004 is the health of the U.S. economy, Marshall says.