MasterCard quarterly profits jump

MasterCard, the electronic payment network provider, reported better-than-expected profits as consumers in the developing world shifted more of their purchases to plastic and spent more money in other countries.

Net income was $518m, an increase of 15 per cent from the same period a year ago. Earnings per diluted share were $3.94, up from $3.45 last year, and topping the median analyst estimate of $3.54.

Revenues, reported net of rebates paid to lenders who use MasterCard’s credit and debit networks, were $1.4bn in the third quarter, up 5 per cent from the same period in 2009.

The gross dollar volume of card swipes was up 8.5 per cent to $685bn, which included a 15.4 per cent increase in spending across national borders. MasterCard charges an additional fee to users of its networks for cross-border transactions as it takes on currency conversion risks.

Volume in the third quarter declined in the US, its largest market, by 1.7 per cent, which was offset by a 23.6 per cent increase in Asia-Pacific, the Middle East and Africa. Latin America grew by 20 per cent.

“Consumers and businesses around the world continue to recognise the benefits of electronic payments and MasterCard remains at the heart of this evolution,” said Ajay Banga, chief executive.

MasterCard generates revenues by collecting fees from lenders, such as JPMorganChase and Citigroup, that issue credit and debit cards to consumers that use the MasterCard network.

Competition with Visa, Discover and American Express for bank customers has become tougher as a number of large financial institutions consolidated during the height of the financial crisis.

MasterCard said that though it raised its prices by about 7 percentage points, that was offset by “a net increase in rebates and incentives due to new and renewed customer agreements”.

MasterCard has recently said it wants to compete more directly with non-card payment networks like PayPal, and it acquired DataCash, a UK company, in August.

Mr Banga said that in 2011 MasterCard would begin offering a trial of mobile phones-as-credit cards through a large US card issuer. He also said a memorandum of understanding had been signed with China Union Pay to explore mobile payment opportunities.

The credit card networks have also been fighting a battle on Capitol Hill, as Democrats led by Senator Richard Durbin inserted an amendment into the Dodd-Frank financial reform bill that would limit how much banks can charge to merchants to use their credit cards.

Mr Banga said that he expected the US Federal Reserve, which is empowered by the bill to writing new rules on fees, to release its findings in December.

That does not directly affect MasterCard and its rivals, but could lead banks to put pressure on them to lower their own fees.

Shares in MasterCard were trading 4.6 per cent higher in the pre-market at $250.00. They are down 6.6 per cent year-to-date.