The 2 Businesses that Drive MasterCard's Stock

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MasterCard ( MA ) is the second largest global payment solutions company in the world. It provides a variety of services to support the credit, debit and related card payments of over 24,000 financial institutions globally. MasterCard competes with Visa ( V ) and American Express ( AXP ). In a recent note we looked at what drivers are propelling MasterCard's business like mobile payments and the increasing use of electronic payment methods - see 2 Key Value Drivers for MasterCard .

Below we look at the two most business divisions for MasterCard which have significant impact on its stock price and our $293 price estimate for MasterCard.

2 Most Important Divisions - A Snapshot

1) Transaction Fees - 32% of the company's stock value

MasterCard operates its MasterCard Worldwide Network, which links issuers and acquirers around the globe for transaction processing services and, through them, permits MasterCard cardholders to use their cards at millions of merchants worldwide.

In a transaction, MasterCard charges issuers and acquirers a fee for the network and the services it provides for a transaction to go through. Transaction fees is one the major revenue source for MasterCard and includes authorization, settlement and switch charges as well as connectivity charges. In 2010, MasterCard processed 22.6 billion transactions and generated $3.3 billion revenues.

See the top forecasts for the transaction fees

2) International Fees - 29% of the company's stock value

International fees contribute a major percentage of MasterCard revenues because of the higher fees that MasterCard charges on international transactions. The international transaction revenues include transaction fees and other special fees like cross-border fee and currency conversion fee. In 2010, MasterCard charged a currency conversion and cross-border fee off 1% of the transaction amount.

The currency conversion fee was 0.2% of the transaction amount and the cross border fee was 0.8%  of the transactions amount. MasterCard generated about $2.7 billion revenues from international fees in 2010.

See the top forecasts for the international fees

See our full analysis of MasterCard here



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 , MA , V

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