By Andrew R. Johnson
MasterCard Inc.'s fourth-quarter profit rose 3% as cardholder spending increased, though an increase in payments
the company made to its bank partners and slowing growth raised some red flags.
The rebate and incentive payments, which MasterCard pays to banks when signing new contracts and renewing
agreements, increased 23% to $925 million.
Higher rebates and incentives can be viewed as a good sign for the company because it means it is winning new
deals, but it also can be a concern for investors who worry about banks demanding better pricing from MasterCard,
according to analysts.
"The notoriously lumpy rebates line was even higher than expected," which "spoiled an otherwise generally solid"
quarter, Jason Kupferberg, an analyst with Jefferies, wrote in a research note.
MasterCard also said its net revenue growth for the year could come in at the low end of its three-year target, 11%
to 14%, due to the loss of a consumer credit-card portfolio at J.P. Morgan Chase & Co.
MasterCard's shares closed down $4.08, or 5.1%, to $75.68, after dropping as much as 10% in intraday trading on
The Purchase, N.Y., company posted a profit of $623 million, or 52 cents a share, up from $605 million, or 49 cents
a share, a year earlier.
Both periods reflect the company's 10-for-1 stock split, which MasterCard announced late last year.
Revenue climbed 12%, to $2.13 billion, boosted by a 13% increase in processed transactions and a 18% jump in cross-
border volume, which measures payments made in one country with a card issued by a bank in another country. The results
fell short of analyst estimates that called for the company to earn 60 cents a share on $2.14 billion in revenue.
MasterCard completed several deals in the fourth quarter, including an expanded relationship with Citigroup Inc.
for the bank's American Airlines credit-card program and a new agreement with J.P. Morgan Chase & Co. for commercial
cards, which drove the payments higher, Chief Executive Ajay Banga said during a conference call.
"We signed a few more deals, which is a good thing for the long run," Chief Financial Officer Martina Hund-Mejean
said in an interview.
Rebate and incentive payments should come in at more normal levels in the second and third quarters, Ms. Hund-
Mejean said. It can take six to nine months for new deals to begin having a positive financial impact for the company,
Ms. Hund-Mejean said.
The results come a day after larger rival Visa Inc. reported an 11% jump in payments volume, lifting net income by
MasterCard, the world's second-largest payment network after Visa, operates a system that helps process
transactions for banks that issue its credit and debit cards and those that handle transactions for merchants.
Mr. Banga said it is beginning to feel like the U.S. economy is showing "forward momentum," though overall economic
growth in Europe remains subdued.
This quarter, U.S. processed volume is up 9%, while volume outside the U.S. is up 17%, both slight increases over
the fourth quarter, Ms. Hund-Mejean said.
Last quarter, cardholders made $1.1 trillion in purchases on MasterCard cards, up 14% on a local-currency basis
from a year earlier.
MasterCard recorded a $61 million after-tax charge related to merchants who have opted out of a settlement over
transaction fees that retailers pay each time a customer makes a purchase with a credit card.
A federal judge in December said that he would grant final approval to the settlement, which is valued at $5.7
billion and includes MasterCard, Visa and several large banks.
The settlement aims to put to bed lawsuits filed in 2005 accusing Visa and MasterCard of conspiring with banks to
set the transaction fees, also known as swipe fees, at arbitrarily high levels. Several merchants and retail trade
groups have opposed the settlement and are appealing final approval of the deal.
Mr. Banga said the company expects most large merchants who opted out of the swipe-fee settlement to file new
lawsuits against the companies, as several already have done.
Mr. Banga also touched on card security in the wake of several data breaches involving merchants, including Target
Corp. and Neiman Marcus.
The recent events should encourage banks, retailers and payments companies to "come together with a sense of
urgency" to adopt card-security standards known as EMV, Mr. Banga said.
To spur adoption, Visa and MasterCard have set an October 2015 deadline for merchants and banks to adopt the
technology, which is common in many European countries.
While chip-based cards won't prevent data breaches from occurring, they make it "almost impossible" for people to
create counterfeit cards when a breach occurs, he said.
Write to Andrew R. Johnson at firstname.lastname@example.org
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