CEO Says ‘Singles And Doubles’ Are Helping MasterCard To Win New Business

Despite the impending loss of consumer payment cards from mega-bank JPMorgan Chase & Co., MasterCard Inc. is winning new business from U.S. card issuers, its top executives said Thursday at the No. 2 payment card network’s first-quarter earnings call. U.S. credit card purchase volume grew 8.1% year-over-year to $138 billion and U.S. debit purchase volume jumped 9.6% to $130 billion.

The debit increase marked the third quarter in a row in which MasterCard’s U.S. debit purchase-volume growth outpaced that of market leader Visa Inc. MasterCard also says its debit card count increased 13.3% to 162 million.

A big part of MasterCard’s recent debit growth is a gift from Congress in the form of the transaction-routing requirements of the Durbin Amendment in 2010’s Dodd-Frank Act. That amendment shifted more than half of Visa’s PIN-debit volume to competitors such as MasterCard and electronic funds transfer networks beginning in 2011.

“The math would tell you we’re gaining share…I know that our PIN-debit volumes continue to remain, as I said, above that 400 million transactions a month, which is up from the 100 [million] that we used to have pre-Durbin,” MasterCard president and chief executive Ajay Banga said in response to an analyst’s question about what accounted for the company’s recent debit growth.

Visa, however, is nowhere near being dethroned in debit, having posted $305 billion in U.S. debit purchase volume for the quarter ending March 31, more than twice MasterCard’s volume. Visa also continues to lead in U.S. credit, with $269 billion in charge volume last quarter, up 10.6% from a year earlier. And Chase has started the process of switching an unknown but large number of MasterCard cards to the Visa brand, a de-conversion that MasterCard chief financial officer Martina Hund-Mejean said will continue into 2015. MasterCard has accounted for the deconversion in its financial projections, she said. A Chase spokesperson declined comment.

Partly countering the Chase loss is the coming addition of Target Corp.’s credit and debit card portfolios to the MasterCard processing system when the Minneapolis-based retailer converts its magnetic-stripe cards to chip-and-PIN cards. That conversion will include the rebranding of a cobranded Visa credit card as a MasterCard. Wal-Mart Stores Inc. also is switching its Discover cobranded credit card to MasterCard.

Queried by an analyst on how MasterCard is differentiating itself, Banga said the company is attracting issuers because of its analytics, acceptance, marketing, and pricing. “All these things put together are helping us win business. We don’t win every deal we bid for, don’t get me wrong,” he said, adding that MasterCard is hitting “singles and doubles.”

Regarding mobile payments, Banga said MasterCard’s MasterPass digital wallet is now available in seven countries—the U.S., United Kingdom, Canada, Australia, New Zealand, Italy, and China—and more than 40,000 merchants accept it. The wallet soon will be available as an in-app option so it can be selected within a mobile-shopping application, eliminating the need for the consumer to enter payment card information when making a purchase with a smart phone.

On a related note, MasterCard soon will release specifications for host-card emulation (HCE) to facilitate contactless mobile payments using near-field communication (NFC) technology, Banga said. Cloud-based HCE gives mobile-payments providers an alternative to storing payment credentials on a smart phone.

Meanwhile, Banga said he does not expect MasterCard to take a big hit should Russia proceed with plans to develop a domestic payments system. Russia, which accounts for about 2% of MasterCard’s net revenues, is looking for alternatives to Visa and MasterCard in the wake of Western economic sanctions imposed on the country for its recent annexation of Crimea from Ukraine and its continuing political and military pressure on its smaller neighbor. Banga said he doesn’t know to what extent Russia’s proposed regulations on foreign-based card networks would restrict MasterCard. “The situation is fluid,” he said.

MasterCard reported first-quarter net income of $870 million, up 13.6% from $766 million a year earlier, on revenues of $2.18 billion, up 14.2% from $1.91 billion. Processed transactions grew 13.8% to 9.85 billion.