Credit: Shutterstock photoMastercard ( MA ) reported this week that net income was up 15% to $700 million, but investors were not pleased with its revenue growth of 9%.
They'd come to like revenue growth that went straight up:
Mastercard blamed the impact of foreign exchange, which it said reduced net revenues by 5%. But there was a clue in its filing that seems to show downward pricing pressure.
Retailers are generally unhappy about swipe fees, the subject of a well-publicized lawsuit. MasterCard and Visa ( V ) announced July 13 they had an agreement to settle that, but some of the biggest retailers including Wal-Mart ( WMT ) have said they don't support the agreement. MasterCard and Visa don't get so-called swipe fees directly, even though they set the rates. Merchants pay those fees and some others to the banks. The biggest portion of their fees is from swipe fees, also called interchange fees. The networks then collect a variety of different fees from banks.
But retailers are unhappy. By fighting the settlement, regardless of what happens with it, they're raising awareness of this issue. And in MasterCard's filing, it looks like banks may be pushing back on MasterCard. If so, expect to see the same at Visa.
MasterCard doesn't show exactly how much it gets from banks, but fees it takes in from them fall into three of its five revenue streams including "domestic assessments," "transaction processing fees," and "other revenues." Those were up 10%, 19% and 7% respectively for the quarter. Those three revenue streams were $1.9 billion, or 77% of its gross revenues.
But even though transaction processing fees were up 19%, the processed transactions were up 29%. It looks like MasterCard made less per transaction.
Another possible sign of stress -- the rebates it pays out to banks to keep them using the network rose 24%. That may not be directly related to swipe fees, but those pushed MasterCard's net revenues down to $1.8 billion.
Meanwhile, another revenue stream of "cross-border volume fees," is also under pressure. MasterCard and Visa charge fees to people who cross borders, but that doesn't sit well in the European Union, where lots of cardholders cross borders regularly. Regulators there have pushed to curb Visa and MasterCard's cross-border fees, and a court recently upheld that decision as it relates to MasterCard.
In the U.S., it's looking less likely that the credit card companies' swipe fee settlement will go through. Former MasterCard executive David True wrote in American Banker ( here's a link ) that the agreement is bound to fail because retailers aren't about to sign away future rights to sue. If the settlement fails, and swipe fees come under more pressure, so will MasterCard revenues.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
