) is the second largest global payment solutions company in the
world after Visa (
), and processes approximately 21 billion transactions each year.
The company provides a variety of services to support the credit,
debit and related card payments of over 24,000 financial
institutions across the globe. Apart from Visa, its major
competitors are Discover (
), Diners Club and JCB.
Our price estimate for MasterCard stock is $214
, which is about 9% below market price.
MasterCard charges customers for its payment-related services,
primarily based on the volumes they generate on MasterCard-branded
cards. MasterCard's total revenues are largely a function of the
number of transactions processed, as well as the gross dollar
volume of purchases.
Gasoline is one of the most frequent items purchased on credit
cards. With U.S. consumption at 9.2 million barrels per day during
December 2010, the growing mix of customers opting to purchases
gasoline on a credit card makes this item a key revenue source for
Scenario: Crude Oil Price Reaches $150 per
MasterCard charges gas stations when they accept payments for
fuel using MasterCard-branded cards. The charges depend upon the
number of transactions as well as the dollar value of transactions.
High crude oil prices would result in high fees charged by
MasterCard, cutting into the margins of the gas station owner. This
was the reason why many gas stations offered 5-8 cents discounts on
gasoline if customers paid by cash rather than credit card
when crude oil prices jumped to nearly $140 per barrel during
Crude oil prices increased by about 18% last year and, according
to some estimates, may reach $150 per barrel by 2014. If this price
level were to be reached due to inflationary pressure and growth in
demand from emerging countries, aggregate dollar purchases of
gasoline would see a corresponding increase.
MasterCard's authorization, settlement and switch fees charged
to issuers and acquirers for transaction authorization would get a
lift from this potential increase in gasoline purchases. We
estimate that MasterCard's authorization, settlement and switch fee
per transaction will decline to 7 cents from 2013 onwards, from its
current level of 8 cents, due to high competition and regulatory
changes. However, a crude oil price of $150 a barrel by 2014 could
help maintain the current level of 8 cents per transaction,
generating a 6-7% increase in our base price estimate for
Drag the trend line in the modifiable chart above to see how
various authorization, settlement and switch fee transaction
scenarios could affect MasterCard's stock value.
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You can see the complete $214 Trefis Price
estimate for MasterCard's stock here