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It’s bad for consumers and bad for the payments industry, but the Durbin Amendment that imminently will upend the U.S. debit card market still presents some opportunities for MasterCard Inc., according to the No. 2 payment network’s president and chief executive, Ajay Banga.
Specifically, MasterCard could well pick up new business from debit card issuers that now have exclusive affiliations with Visa Inc. in which their cards offer the Visa brand for signature debit and Visa’s Interlink network for point-of-sale PIN debit. The Durbin Amendment, part of the sweeping Dodd-Frank financial law enacted last summer, bans such exclusive affiliations and mandates that each debit card offer at least one unaffiliated network in order to give merchants more transaction-routing options. The Federal Reserve Board is considering various regulatory options to implement the Durbin Amendment, everything from simply requiring issuers to add one unaffiliated PIN network to existing cards to requiring cards to access two signature and two PIN-debit networks. Visa commands about 70% of the major-brand U.S. debit market, so MasterCard, with its Maestro PIN-debit network, could make hay out of the demise of non-exclusivity even though it has its own exclusive deals with some debit issuers.
“We continue to anticipate some potential upside to our volumes as a result of the routing non-exclusivity, regardless of how it finally gets sorted out,” Banga told analysts Thursday during MasterCard’s fourth-quarter earnings call. “So from a share perspective, as I said in the past, we have more to gain than to lose.” He added, according to the Seeking Alpha transcript service, that MasterCard has “opportunities to sell … our strong PIN solution. Remember, it’s the only one that operates globally.”
But echoing his counterpart at Visa, chief executive Joseph W. Saunders, Banga reiterated the Durbin Amendment’s negatives in the eyes of banks and the payments industry: higher consumer fees for bank accounts as big financial institutions try to recoup lost debit interchange, and less innovation because of regulation. “The balance [is] tilting towards consumers having to pay more for these payment-related services and innovation being stifled at the other end,” Banga said. The Fed is considering 12-cent-per-transaction debit interchange caps for issuers with more than $10 billion in assets, caps that could cut big issuers’ debit revenues by more than 70%. On Wednesday, the blunt-speaking Saunders said, “consumers have been thrown under the bus in this legislation.” Merchant groups, however, stand to pay much less in debit interchange and generally support the Durbin Amendment.
MasterCard reported $88 billion in U.S. debit purchase volumes in the fourth quarter, up 4% from $85 billion in 2009’s last quarter. Debit purchase transactions grew 3% to 2.23 billion. The average U.S. debit card purchase was $39.48, up 6 cents over the year.
On the U.S. credit card side, MasterCard reported $126 billion in purchases, up 3% from $123 billion in 2009’s fourth quarter. Credit purchase transactions grew 2% to 1.55 billion from 1.52 billion. The average credit ticket grew slightly to $81.45 from late 2009’s $81.08.
For all of 2010, MasterCard posted credit card purchase volume of $479 billion, up 0.5% from 2009, on 5.85 billion transactions, down 1%. Debit card purchase volume rose 2% to $333 billion and transactions increased by a similar amount to 8.46 billion.
On the financial side, MasterCard reported net fourth-quarter revenues of $1.44 billion, up 11% from $1.30 billion a year earlier. Net income grew 41% to $415 million from $294 million in 2009’s fourth quarter.
