) reported this week that net income was up 15% to $700 million,
but investors were not pleased with its revenue growth of 9%.
They'd come to like revenue growth that went straight up:
Mastercard blamed the impact of foreign exchange, which it
said reduced net revenues by 5%. But there was a clue in its
filing that seems to show downward pricing pressure.
Retailers are generally unhappy about swipe fees, the subject
of a well-publicized lawsuit. MasterCard and Visa (
) announced July 13 they had an agreement to settle that, but
some of the biggest retailers including Wal-Mart (
) have said they don't support the agreement. MasterCard and Visa
don't get so-called swipe fees directly, even though they set the
rates. Merchants pay those fees and some others to the banks. The
biggest portion of their fees is from swipe fees, also called
interchange fees. The networks then collect a variety of
different fees from banks.
But retailers are unhappy. By fighting the settlement,
regardless of what happens with it, they're raising awareness of
this issue. And in MasterCard's filing, it looks like banks may
be pushing back on MasterCard. If so, expect to see the same at
MasterCard doesn't show exactly how much it gets from banks,
but fees it takes in from them fall into three of its five
revenue streams including "domestic assessments," "transaction
processing fees," and "other revenues." Those were up 10%, 19%
and 7% respectively for the quarter. Those three revenue streams
were $1.9 billion, or 77% of its gross revenues.
But even though transaction processing fees were up 19%, the
processed transactions were up 29%. It looks like MasterCard made
less per transaction.
Another possible sign of stress -- the rebates it pays out to
banks to keep them using the network rose 24%. That may not be
directly related to swipe fees, but those pushed MasterCard's net
revenues down to $1.8 billion.
Meanwhile, another revenue stream of "cross-border volume
fees," is also under pressure. MasterCard and Visa charge fees to
people who cross borders, but that doesn't sit well in the
European Union, where lots of cardholders cross borders
regularly. Regulators there have pushed to curb Visa and
MasterCard's cross-border fees, and a court recently upheld that
decision as it relates to MasterCard.
In the U.S., it's looking less likely that the credit card
companies' swipe fee settlement will go through. Former
MasterCard executive David True wrote in American Banker (
here's a link
) that the agreement is bound to fail because retailers aren't
about to sign away future rights to sue. If the settlement fails,
and swipe fees come under more pressure, so will MasterCard
From the editors of YCharts.
YCharts Pro Investor Service