MasterCard's Pact with China's UnionPay Should Spark Revenue Growth

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MasterCard ( MA ) has entered into an agreement with China UnionPay Data Co., expanding its presence in China and likely raising revenues for both companies by adding locations where their cards are accepted. Mastercard is the second largest global payment solutions company in the world and provides a variety of services to support credit, debit and related card payments globally. Its main competitors are Visa ( V ), American Express ( AXP ), Discover Financial ( DFS ), Diners Club and JCB.

We have a price estimate of $214 for MasterCard's stock, which stands below market price.

See our full analysis and $214 price estimate for MasterCard

Growth in China's Credit Card Market

As China is predicted to overtake the U.S. as the largest market for credit cards by 2020 with about 900 million cards in circulation, payment service providers like Visa and MasterCard are looking for an entry point in the Chinese market to grab a piece of this growing market. Total cards in China is expected to increase 11% annually and transaction value is expected to climb 14% annually until 2025.

China UnionPay is the sole bank card transaction processing company in the region and the biggest card company globally in terms of card issuance and the second largest brand in the Asia-Pacific region in terms of transaction volume. Foreign credit card companies are barred from transactions in the Chinese market and international cards are not accepted in China. The partnership between MasterCard and UnionPay would help both companies reach a wider base of customers.

Visa Inc. clashed with UnionPay in June last year and complained that China is violating trade rules by denying international payment processing companies an entry into its market. The U.S. Trade Representative, Ron Kirk, was looking to file a complaint at the World Trade Organization over the rules which block companies such as MasterCard, Visa, American Express Co. and Discover Financial Services from processing credit and debit card transactions in China.

Upside to MasterCard

Penetration of electronic payment is still low in China. Of China's $3 trillion personal consumption market, China UnionPay accounts for about a third of the payment processing. The remaining two-third of the market is settled through cash. Thus, there is ample scope for MasterCard to increase its number of transactions processed by partnering with China UnionPay. We currently estimate that the number of transactions processed by MasterCard will increase from 23 billion in 2010 to about 57 billion by 2017, at an annual growth rate of roughly 14%.

Drag the trend line in the modifiable chart above to see how various trends in the number of transactions processed affect MasterCard's stock value.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AXP , DFS , MA , V

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