As it looks to generate more revenue and to enable issuers of its cards to better analyze their customers’ transactions, MasterCard Worldwide is exploring ways to secure more volume for its processing switch from cards carrying the network’s brand, especially outside the U.S., Chris McWilton, MasterCard president of U.S. Markets, said during a March 1 presentation.
Speaking at the Thomson Reuters Future Face of Finance Summit in New York, McWilton noted “a little-known fact” that MasterCard’s transaction switch in St. Louis handles only “four out of 10 transactions that appear with cards with our brand on it.”
Most of that volume comes from domestic transactions outside the U.S., where 80% of MasterCard transactions flow through the company’s switch, he said.
“So if you go to Europe, you go to the Asia-Pacific region, and you see a MasterCard and someone uses that domestically–so they use it in-country–that transaction doesn’t drop through our switch,” McWilton said. “We get (an assessment) fee for having the brand on the card, but there’s really bank-owned switching networks in all these countries, and we don’t touch those transactions.”
MasterCard believes the economics are better and the card brand can do more for issuers when transactions flow through its switch. As such, it will be looking at “processing acquisitions, lengthening the value chain to different aspects of processing, prepaid processing, acquiring processing, issuer processing. Those are all things that we look at over time and try to make sure that our brand is processed more than just happens to be on the card for cross-border acceptance,” McWilton said.
Also during his question-and-answer session with Thomson Reuters Media, McWilton defended MasterCard’s decision not to announce plans to support a two-tiered interchange system for debit card transactions, which would be required under the Federal Reserve Board’s proposed rules under the Dodd-Frank Act because institutions with less than $10 billion in assets would be exempt from the proposed 12-cent cap.
“We have fought the good fight in Washington to stop government price-fixing of our business, … so we have reserved commentary on a two-tiered structure” he said. “We are doing sort of the back-office work to prepare for that, but we are not making a decision on actually whether to implement it, which is an important nuance.”
Despite the financial impact the proposed rules could have on issuer income, which he said could amount to $14 billion annually, McWilton remained bullish on the debit card market.
“We continue to believe in debit as a consumer proposition, and there are those out there that say, ‘well, this is the death knell for debit cards.’ I don't think it is, personally,” McWilton said. “We are very much focused on debit. It’s an area where, as a company, 10 years ago we went left and the world went right, and we ended up in a low share position in debit, both in PIN and signature. But we are battling back, and we are going to continue to invest in debit and have some nice wins to show there.”
When MasterCard and Visa first began vying for issuer attention in the U.S. debit card market, MasterCard chose to promote its Maestro PIN-debit product for point-of-sale transactions while Visa touted its signature-based check card, which generated significantly more interchange revenue for issuers. Subsequently, MasterCard has struggled to gain much more than a 20% to 25% share of the signature-debit market, though Maestro is a market leader in many countries outside the U.S.
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