) stock derives majority of its value from transaction fees, which
we estimate forms 32% of the stock. An important metric of
MasterCard's transaction fee revenues is the connectivity fee.
MasterCard charges a connectivity fee for routing the transaction
through its electronic financial network for processing and
settlement and delivering the payment to the merchant's online
account once it has been obtained from the credit card holder's
account with the issuing bank. MasterCard's main competitors are
), Diners Club and JCB.
MasterCard charged a connectivity fee of $0.005 per transaction
between 2006 and 2008, but this increased to $0.0185 in 2009 as the
company replaced the existing fee with a new fee called Network
Access and Brand Usage (NABU) in the wake of economic downturn.
Even though the Federal Reserve is looking to pass restrictions on
interchange fees, we expect the network access fee to remain at
current levels for the next few years, and then decline
While we anticipate the connectivity fee charged by MasterCard
will reduce to $0.004 by the end of Trefis forecast period, Trefis
members expect a smaller decline to $0.007 per transaction. We
currently have a
Trefis price estimate of $293 for MasterCard's
, about 14% above the current market price.
Expanding Data Network to Lower Connectivity
In countries where MasterCard does not have its own network, it
uses third-party networks. By doing so, it loses out on transaction
revenues that it could have earned otherwise. MasterCard is trying
to offer domestic solutions in various countries and these centers
will bring the costs down and help MasterCard to lower its
connectivity fee. A few acquisitions in the past have helped the
company in this pursuit. MasterCard acquired DataCash Group, a
European payment service provider for $520 million in August 2010.
We believe that the DataCash acquisition will widen MasterCard's
global network and presence and also drive e-commerce growth with
more customers using MasterCard products in the European
MasterCard made another small acquisition of $100 million in
2009 of Ireland-based Orbiscom which makes payment processing
networks that help financial institutions interact with credit,
debit and prepaid cardholders.
Trefis Community Forecast
Trefis members forecast MasterCard's connectivity fee per
transaction will decrease from $0.0189 in 2011 to $0.007 by the end
of the Trefis forecast period, compared to the baseline Trefis
estimate of a decrease from $0.015 in 2011 to around $0.005 by the
end of the Trefis forecast period. The member estimates imply an
upside of 2% to the Trefis price estimate for MasterCard's stock
for a potential total upside of over 15% based on our price
complete analysis for MasterCard's stock is here