Visa, MasterCard Post Big Volume Gains As They Fight for Credit, Debit Card Spend

U.S. bank card purchase volumes rose in the 10% range in the quarter ending Sept. 30, with MasterCard Inc. growing faster than Visa Inc. in debit and Visa gaining faster than MasterCard in credit.

MasterCard on Thursday reported total U.S. credit, charge, and debit card purchase volume of $267 billion, up 9.2% from $244 billion a year earlier. Visa late Wednesday reported U.S. total payment volume of $575 billon for its fourth quarter of fiscal 2013, an increase of 10.3% from $521 billion in fiscal 2012’s last quarter.

Results differed for the two rivals when charge volume is broken down by credit and debit, however. MasterCard gained share in debit, with total U.S. purchase volume hitting $123 billion, up 11.6% from $110 billion in the prior-year quarter, on 3.2 billion transactions, an increase of 13.1%. Issuers added 20 million cards to MasterCard’s U.S. debit card base, bringing it to 150 million, up 15.4%.

The transaction-routing requirements in the Durbin Amendment, a part of 2010’s Dodd-Frank Act, upended the many exclusive relationships Visa had with debit card issuers and shifted considerable volume from Visa’s Interlink PIN-debit network to rivals such as  MasterCard’s Maestro and other electronic funds transfer networks. Visa, however, is in no danger of losing its U.S. debit card crown, even though its volume growth rate of 9.6% lagged MasterCard’s. Visa’s $298 billion in debit purchases versus $272 billion a year earlier gave it 70.8% of the bank debit card market, a loss of less than half a percentage point in market share from last year. Debit transactions rose 10.2% to 8.07 billion.

In credit, Visa posted U.S. payment volume of $277 billion, up 11% from $250 billion in fiscal 2012’s last quarter, on 3.32 billion transactions, up 11.6%. MasterCard reported  total U.S. credit card purchases of $144 billion, a year-over-year increase of 7.2% from $134 billion, on 1.64 billion transactions, up 4.2%. Based on purchase volumes, Visa commands a hair under 66% of the bank credit card market versus 34% for MasterCard.

Both networks are benefiting from the continued popularity of debit cards with consumers as well as a gradual recovery in credit card volumes, which took a hit in the recession. But they’re also spending heavily on volume incentives to buy the loyalty of issuers (which decide which network brands to put on their cards) and merchants and merchant acquirers (which sometimes do promotions that encourage spending on a particular card brand). Visa spent $680 million in the fiscal fourth quarter on worldwide client incentives, up nearly 21% from $563 million a year earlier. MasterCard spent even more, $706 million, up 8.3% from $652 million.

The networks nonetheless reported healthy profits, even though Visa’s quarterly net income fell 28.3% to $1.19 billion from $1.66 billion a year ago in part because it set aside $574 million for income taxes. Visa’s operating revenues, after client incentives are deducted, hit $2.97 billion, up 8.9% from $2.73 billion in fiscal 2012’s fourth quarter.

At MasterCard, third-quarter net income jumped 13.9% to $879 million from last year’s $772 million, on net revenues of $2.22 billion, up 15.6% from $1.92 billion.