MasterCard Reports Debit Up, Credit Growth So-So, And a Tie-Up with Square

New PIN-debit business as a result of the Durbin Amendment continued to lift MasterCard Inc.’s transaction volume in the third quarter, though the No. 2 card network’s top executives warned on Wednesday that the big growth is likely to slow down. Meanwhile, MasterCard is turning its attention to juicing up its slow-growing U.S. credit business and eyeing mobile-payments opportunities worldwide. The company even has something brewing with mobile-payments processor Square Inc.

Federal Reserve regulations implementing the debit card transaction-routing provisions of the Durbin Amendment in 2010’s Dodd-Frank Act took effect April 1, and those rules caused a huge shift in volume away from Visa Inc.’s Interlink network, which dominates U.S. PIN debit. Interlink’s volume has fallen by more than 50%, and industry observers say much of that volume has gone to MasterCard’s rival Maestro network. MasterCard’s third-quarter U.S. debit purchase volume rose 12.9% to $110 billion from $97 billion a year earlier, and debit purchase transactions increased 13.5% to 2.82 billion from 2.49 billion. Those increases about matched what MasterCard reported for the second quarter.

MasterCard’s global network processed a total of 8.68 billion transactions in the quarter, up nearly 24% from 7 billion a year earlier. Chief Financial Officer Martina Hund-Mejean said half of that growth came from new U.S. PIN-debit business.

But the Durbin-induced PIN-debit migration by card issuers is likely to slow, according to Hund-Mejean. U.S. debit growth already is down from its approximately 19% increase in the first quarter. “I don’t think you should be expecting going forward to have a similar push,” she told analysts at a morning conference call.

MasterCard chief executive Ajay Banga also said MasterCard is employing different debit strategies from those used by Visa in the post-Durbin debit market. He made that comment when an analyst asked about the effect of Visa’s PIN-authenticated Visa Debit (PAVD) system that can route a PIN-debit transaction to Visa even if the debit card doesn’t carry the Interlink mark.

“We are not playing the game the way they are,” he said. “I think [PAVD is] impacting the regional networks more right now with that pricing strategy than the wins that we’ve got, but that could change.”

While still working to win new debit business, Banga also said MasterCard needs to boost U.S. consumer credit. Commercial credit card volumes are growing in the mid-teens, according to Banga, but consumer cards are lagging. Total U.S. credit purchase volume weighed in at $134 billion, up only 3.2% from $130 billion in 2011’s third quarter, and credit purchase transactions increased only 1.3%. Visa’s credit volumes have been growing much faster in recent quarters (Visa is scheduled to report its fiscal fourth-quarter financials late Wednesday).

MasterCard intends to grow its consumer credit card volumes by not only trying to wring out more business from its existing issuers, but also by pursuing portfolio conversions from small banks and credit unions, and adding cobranded card portfolios from regional banks, he said. That strategy could take up to two years to show results. “It’s a slow fix, it doesn’t happen overnight … we’re doing it systematically,” Banga said.

The company also is pursuing mobile payments on a global scale. In response to a question about its efforts in the mobile market, Banga made a brief but intriguing reference to Square Inc., the high-profile mobile-payments provider that this month moved into Canada and whose investors include Visa. “We’ve got a great partnership with Square,” he said. “We’re actually talking to them about going to countries outside of the U.S.” Banga then moved on to another topic. Asked for detail, a spokesperson for San Francisco-based Square declined to comment.

Meanwhile, MasterCard general counsel Noah J. Hanft said he expects the controversial settlement in a major merchant antitrust case challenging the networks and banks over credit card interchange to win court approval despite the much-publicized dissent in merchant circles.

MasterCard reported net income of $772 million, up 7.7% from $717 million in 2011’s third quarter, on net revenues of $1.92 billon, up 5.5% from $1.82 billion.