MasterCard: Turning The Corner on Debit?

  MasterCard International in 2004 continued to make strides in the U.S. debit card market. While MasterCard credit card issuance and transaction volume still far exceed those of debit MasterCard, the card association still views cash and checks as its primary competition, and debit as its main weapon in that battle.
  "[MasterCard] seems to finally be getting the debit thing cranked up, which is good," says James Shanahan, senior vice president at E-Smart Services Inc., a Denver-based technology and consulting company specializing in commercial cards. "They've really turned the corner."
  The number of signature-based, or offline, debit MasterCards issued in the U.S. as of the end of 2004 totaled 66.3 million, up 25% from 53.1 million a year earlier. The number of debit MasterCard purchases initiated in 2004 totaled 2.2 billion, up 12.8% from the previous year. Offline debit purchase volume last year totaled $81.6 billion, up 13.7%.
  The number of MasterCard credit cards issued in the U.S. as of the end of 2004 totaled 271.5 million, up 1.8% from a restated 266.7 million 2003 total. MasterCard says the restatement of member-reported data resulted in a 3.4% reduction in credit cards issued in 2003 compared with the previous year. Last year CCM reported a 1.9% rise in MasterCard credit cards issued for 2003 from the previous year (MasterCard: Steady as She Goes, May 2004).
  U.S. credit card purchase volume in 2004 totaled $433.7 billion, up 8.5% from $399.6 billion in 2003. U.S. credit card gross dollar volume last year reached $546.7 billion, up 6.3% from $514.5 billion. MasterCard is accepted at 24 million locations worldwide, 5.6 million of which are in the U.S.
  MasterCard's $293.6 billion in U.S. receivables in 2004 represented zero growth from the previous year, when receivables totaled $293.2 billion.
  While a MasterCard spokesperson says more consumers last year tapped into their home equity lines of credit to pay off card debt and incorporated card debts when refinancing their home mortgages, Shanahan says the lack of receivables growth reflects the difficulties faced by some of MasterCard's major issuers.
  "You can't look at macro factors (such as home equity and refinancing) because the impact should be the same for all brands," he says. "You need to look at the issuer level." Visa is reporting an 8% increase in receivable for 2004 (see story, page 36).
  Last year also was kinder financially to parent MasterCard Inc. Revenue in 2004 totaled $2.59 billion, up 16% from $2.23 billion in 2003. Net income for 2004 was a company record $238 billion compared with a net loss of $386 million the previous year.
  The 2003 loss was caused primarily by the $1 billion settlement MasterCard reached in the Wal-Mart merchant class-action lawsuit settlement. The settlement resulted in a $469 million impact on net income that year.
  Ruth Ann Marshall, MasterCard president of the Americas, notes that U.S. operations represent 60% of MasterCard's business. "So as goes in the U.S., so goes the rest of MasterCard," she says.
  As such, Marshall notes that wins in the U.S. debit card market had more than twice the success of those in the credit card space. Among the issuers announcing plans to switch from issuing Visa check card to debit MasterCard include Washington Mutual Bank, Associated Bank and Bank of the West, which combined issue more than 10 million cards.
  With regard to American Express, which is now free to approach MasterCard and Visa USA issuers because the U.S. Department of Justice last year won its antitrust case challenging the card associations' exclusionary rules, Marshall says she looks forward to the increased competition.
  "If we continue to do things we've done well and serve our customers, then we'll continue to bring more customers to us," she says. "So bring it on."