Wednesday , January 17, 2018

VocaLink, PayPal, And P2P Will Help Propel Mastercard, the Network’s Boss Says

Mastercard Inc. enjoyed a strong third quarter, and Tuesday morning its top executive was not shy about celebrating some of the trends that he expects will further lift results for the world’s second-largest payment card network. These include recent acquisitions, a global partnership with PayPal Holdings Inc., and budding developments in the person-to-person payments business.

VocaLink Holdings Ltd., which Mastercard acquired earlier this year for $920 million, is testing its software for faster payments with The Clearing House Payments Co. Ltd. in preparation for going live soon, said Ajay Banga, Mastercard’s chief executive and president. Owned by the biggest U.S. banks, TCH runs an automated clearing house switch as well as a major check-clearing operation.

Banga: “VocaLink is a very good asset for our company.”

VocaLink’s technology will give the card network not only a new revenue stream from software, but also a foothold in the massive business of ACH payments globally, Banga told equity analysts in a call to discuss Mastercard’s third-quarter results. “ACH tends to be a country-by-country business, very domestic. You first have to get into the domestic switch. It’s very early days, we’re working our way through it.” But, he added, “VocaLink is a very good asset for our company, that you will see.”

Also boding well for the near term is a deal struck by Mastercard, Visa Inc., and other payment companies last year with PayPal that gives those companies’ brands a more prominent role in funding PayPal wallets. In return, PayPal gets access to the networks’ tokenization engines.

The fruits of that deal are starting to show up in Mastercard’s numbers, Banga said, without giving specifics. “It’s a truly global partnership with PayPal,” he said. “We now have similar footprints across every region. Mastercard is a clear and equal option within the PayPal wallet.”

Another benefit of the deal comes from the online channel. As PayPal’s Braintree e-commerce unit signs merchants, Mastercard is gaining new volume, Banga said. “We’re beginning to see the first few merchants come online domestically,” he added.

In P2P payments, Banga pointed to new deals, including one announced last week that will let Western Union users send money in near real-time to Mastercard debit card holders. The service relies on Mastercard Send, a P2P service Mastercard launched in 2015.

More conceptual products were also on Banga’s mind. In answer to an analyst’s question about blockchain technology the company has developed, Banga said the digital ledger will likely be directed to business-to-business payments. “To us, there’s a bigger opportunity in B2B,” he said. Enabling the new blockchain to grow, he said, will depend on how well Mastercard can leverage its existing network infrastructure. “If we can connect it to our old system and use network rules, then scalability becomes possible,” he noted.

But he cautioned that Mastercard is not near rolling anything out. “I think blockchain has a whole ton of potential. But this is early days. Don’t expect this to be switched on tomorrow,” he said.

Mastercard’s U.S. gross dollar volume grew 6% in the quarter year-over-year, to $406 billion, with $209 billion on debit cards and $198 billion on credit cards. Globally, the company saw 10% growth, to $1.353 trillion. Switched transactions increased fully 17%, to 16.85 billion.

Cards totaled 2.41 billion, up 6% year-over-year. This count included 628 million Maestro cards, a debit product used mostly overseas. The count of Maestro cards was down from 659 million in the third quarter last year.

All told, net revenue totaled $3.4 billion, up 18% year-over-year. The single largest component of net revenue was fees for transaction processing, which grew 22% to $1.66 billion.

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