MasterCard’s Debit Card Hit Is Temporary, Execs Say

MasterCard Inc.’s latest debit numbers seem to indicate the network is going backwards while bigger rival Visa Inc. is racking up 20% gains. But MasterCard executives say the company’s underlying debit card trends are positive and will start showing up in the operational reports next year.

MasterCard on Tuesday reported third-quarter U.S. debit purchase volume of $79 billion, off 3% from $81 billion a year earlier. Debit purchase transactions slipped 2.8% to 2.05 billion from 2.11 billion in 2009’s third quarter. At $38.56, the average debit ticket hardly changed from $38.43 a year earlier.

The reason for debit’s less-than-stellar performance, according to MasterCard’s top brass, is deconversion of some big debit portfolios in the United States and the United Kingdom. Although they didn’t mention any by name, The Royal Bank of Scotland Group last year began converting its debit cards with the MasterCard-owned Maestro brand to Visa. In the U.S., JPMorgan Chase & Co. is believed to have switched most if not the entire former Washington Mutual MasterCard debit portfolio to Visa. Before it failed, WaMu converted that 12-million-card portfolio from Visa to MasterCard in one of the biggest debit wins ever for the No. 2 card network (Digital Transactions News, Sept. 26, 2008).

Factor out the deconversions, and the underlying growth rate in total processed transactions for the quarter would have been 12.9% versus the reported 0.6%, according to MasterCard. Those numbers were 5.82 billion transactions against 5.79 billion in 2009’s third quarter. “We believe that the bulk of deconversions are behind us,” chief financial officer Martina Hund-Mejean told analysts Tuesday morning. She later said MasterCard would start getting a lift from the new debit portfolios in mid-2011.

MasterCard, meanwhile, fired some of its own ammo in the unceasing Visa/MasterCard network war for card-issuer loyalty. MasterCard president and chief executive Ajay Banga noted that Philadelphia-based Sovereign Bank plans to change its 2-million-card debit portfolio to MasterCard beginning next year. Other recent MasterCard debit wins in the U.S. include Capital One Financial Corp.’s Chevy Chase unit and the Delta Air Lines SkyMiles debit card portfolio of SunTrust Banks Inc. SunTrust is switching most of its card business from Visa to MasterCard (Digital Transactions News, Jan. 14).

Last week, Visa reported U.S. debit card payment volume of $266 billion for its fourth fiscal quarter ended Sept. 30, up 19.6% from $223 billion a year earlier. U.S. debit payment transactions grew 20% to 7.32 billion (Digital Transactions News, Oct. 28). Visa has about three-fourths of the U.S. debit market.

It’s expensive to persuade issuers to switch brands. MasterCard recorded a charge against revenues of $522 million in the quarter for rebates and incentives, the line item that includes payments to banks and credit unions for issuing branded MasterCard cards and to merchants for card-based promotions. That was up 44% from $363 million in 2009’s third quarter.

In credit, MasterCard reported purchases of $122 billion, up 0.8% from $121 billion in the year-earlier quarter. Credit transactions slipped 0.5% to 1.50 billion from 1.51 billion. The average credit card ticket increased to $81.23 from $80.19 in 2009’s third quarter.

Banga doesn’t expect any major impact on MasterCard’s purchase volumes from the recent settlements by his company and Visa with the U.S. Department of Justice that will give merchants greater freedom to offer discounts for non-card payments or steer customers toward their preferred cards (Digital Transactions News, Oct. 4). While acknowledging that some merchants will discount for cash, he said, “I don’t feel I’m staring at some big change in the way cash is used versus our cards are used.”

MasterCard enjoyed higher growth rates in many international markets than in the U.S. Net income for the quarter hit $518 million, up 14.6% from $452 million a year earlier.