MasterCard to Net Big Profits Despite CARD Act
By: Brian O'Connell

Consumer advocates won’t like it, but the evidence is there in black and white: MasterCard (Stock Quote: MA) says its net income will rise 20% in 2010.

While MasterCard claims its profits stem primarily from an increase in international travel, card industry observers and those in Congress who voted to rein in card issuers will wonder why a major carrier is making big bucks after the Credit Card Accountability, Responsibility and Disclosure (CARD) Act was passed earlier this year.

The Act was meant to control rising fees and charges that credit card companies charge to consumers, especially those who pay their bills late.

But the CARD Act has seemingly had all of the impact on issuers as a pebble bouncing off a battleship. MasterCard’s net income rose to $458 million in the second quarter of 2010, a 31% rise from the $349 million recorded in the same quarter of 2009. Total transactions (on a worldwide basis) were up 0.1%, while card usage outside the U.S. rose by 15%, MasterCard reports.

Net income for 2010 is expected to reach $1.76 billion, according to numbers released by the company.

MasterCard CEO Ajay Banga isn’t talking about the CARD Act, but he’s clearly bullish on his company’s prospects going forward in a post-reform environment. “I feel optimistic about our future growth prospects,” Banga told analysts on a conference call. “The majority of our revenues come from outside of the United States, which as of now is showing faster growth.”

Banga has a point. While credit card usage is growing overseas, there is evidence that it has stalled here in the U.S. A November 2009 study by Javelin Research says that 56% of U.S. consumers used a credit card that month. A year earlier, that number was 87%, according to Javelin. The firm estimates that number to drop to 45% in November of this year.

At the same time, card usage is way up overseas. MasterCard reports that credit card use in China will exceed that of the U.S. by 2020. Europe looks promising as well. “Our volume growth in Europe continues to remain healthy,” Banga said. “In the U.S. however, conflicting figures make it difficult to determine if we have moved into an economic recovery.”

MasterCard is benefiting from what Banga calls a “war on cash.” Global use of credit cards, debit cards and online payment is rising, even as most consumers worldwide still use cash to handle financial transactions. Banga notes that 85% of all global consumer transactions are still cash-based, but that’s a huge growth opportunity for MasterCard going forward.

As for financial reform, MasterCard has been there and done that. Before the U.S Congress acted on card reform, Australia had already taken the same path but data shows that MasterCard’s revenues down under were barely affected by the changes. The company, as well as the banks that delivered the cards to customers, compensated for the new limits by charging more fees to customers and by curbing service costs.

That’s the same recipe card companies are using here in the U.S., so even in the era of card reform, big credit card companies like MasterCard are still doing what they do best: Making money, hand over fist.

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