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Top executives at MasterCard Inc. on Thursday trumpeted the card network’s gains with MasterPass, its digital wallet, and downplayed the impact of JPMorgan Chase & Co.’s ongoing conversion to Visa Inc.
Introduced two years ago, MasterPass is now operating in 10 countries with “tens of thousands” of merchants and will be entering four more national markets by the end of the year, Ajay Banga, MasterCard’s president and chief executive, told analysts in a conference call to discuss the company’s second-quarter earnings. The number of markets where the product is now accepted already exceeds that of “anybody else” offering a digital wallet, Banga boasted.
Indeed, within two years, MasterCard expects MasterPass will have penetrated markets accounting for three-quarters of the company’s gross processing volume, Banga said.
Banga credited acquisitions MasterCard has made in recent months, particularly that of mobile-payments technology vendor C-Sam Inc., with propelling the growth of MasterPass internationally. “C-Sam is all about rolling out MasterPass,” he told the analysts. Referring to his company’s projection that the wallet will be live in countries with 75% of gross volume, Banga said, “I doubt we could have done that without C-Sam.”
MasterCard’s emphasis on MasterPass comes as consumers show an increasing willingness to use mobile devices for payments. In the United States alone, consumers spent nearly $60 billion through mobile devices last year, according to Pleasanton, Calif.-based research firm Javelin Strategy & Research.
Based in Oakbrook Terrace, Ill., C-Sam began offering a mobile wallet as far back as 2005. MasterCard took a minority interest in the company in 2012 and bought it outright in February for an undisclosed sum.
A somewhat less happy topic for MasterCard is the continuing conversion by banking powerhouse JPMorgan Chase & Co. of its card portfolio exclusively to the Visa brand. Banga and chief financial officer Martina Hund-Mejean both conceded the money-center bank’s move is having an impact. That impact will stretch into next year, the executives warned, but added MasterCard has already accounted for it in its projections.
“We saw a little bit of impact in the second quarter in our U.S. credit numbers, even though they are still strong,” Hund-Mejean said, while cautioning, “you’re going to see more, a large portion of the [Chase portfolio] will be rolling off.” Asked by analysts to be more specific about the timing of this impact, Hund-Mejean demurred. “As you know, we don’t have a schedule from Chase,” she said. “These are all our own internal projections.”
Added Banga: “The pace of the Chase attrition in the second quarter was essentially in line with our projections. It will continue to flow into 2015.”
Chase’s move to Visa exclusivity is part of a comprehensive deal the bank struck with the network early in 2013 under which Chase also licenses access to the VisaNet processing backbone for its Chase Merchant Services initiative, which operates as both issuer and acquirer.
Banga underscored how an emphasis on merchants is winning new business for MasterCard. BJ’s Wholesale Club Inc., for example, has agreed to start issuing MasterCard exclusively as part of its move to the EMV chip card standard for its cobranded cards. This win follows a decision earlier by mass-merchant Target Corp. to convert its credit and debit cards to MasterCard when the retailer begins issuing chip-and-PIN cards. “Forty percent of our customer-facing salespeople in the U.S. are dedicated to that [merchant] space,” Banga said.
For the quarter, MasterCard’s U.S. credit card purchase volume reached $155 billion, up 10.3% over the year-ago period. U.S. debit card purchase volume continued on a healthy growth path with a 9.8% increase to $134 billion. MasterCard and other debit switches have benefited from a Durbin Amendment rule requiring debit cards to offer merchants a choice of at least two unaffiliated networks. That rule forced issuers to de-link cards that had carried what had been a dominant Visa-Interlink pairing and substitute another, unrelated network. Interlink is Visa’s PIN-debit network.
Discussing MasterCard’s focus on technology like MasterPass, Banga told the analysts investment in the development of such products is necessary for growth. “There’s a shortage of growth opportunities in our business, frankly,” he said.
For the quarter, MasterCard earned $931 million on net revenue of $2.4 billion, up 13%. Its stock was trading at $74.69 per share more than an hour after the earnings call, off from its $76.30 opening price.
