Payments-market instability in Russia created by pending legislation setting rules for card networks, combined with proposed changes in European network rules, are creating challenges for MasterCard and other payments players, MasterCard president and CEO Ajay Banga told analysts May 1.
Still, Banga said in discussing the company’s first quarter earnings during the conference call, he expects the impact on MasterCard from both issues to be minimal, at least for this year. And in Europe, the situation may present opportunity as well, he said.
Regarding Russia, Banga said he was still evaluating pending legislation many expect President Putin will sign into law that has two provisions that will create potential difficulties for any outside network operating in that country. One is a vague on-soil requirement, where “the devil will be in the details,” he said, noting MasterCard earlier this year launched a full-time processing facility in Russia.
"What we have in place today does not, I believe, meet all of the new Russian requirements, although we’re still studying those,” Banga said. “But we believe may actually provide some of the ingredients that will be necessary."
What’s uncertain is whether the “on-soil” requirement means data must move solely within the country, or whether it pertains to clearing, authorizing or settlement. “I have no clarity on that yet,” Banga said, noting the country’s central bank will set the rules for the legislation. Also unclear is a collateral requirement for what’s defined as a foreign-payments player, he added.
Operations in Russia account for a little less than 2 percent of MasterCard’s revenues, with the vast majority coming from domestic activity and some from cross-border transactions, Banga said on the call.
"The sanctions have had a significant impact in that market, not as much from an immediate financial standpoint for MasterCard but rather on the ground where the Russian government is working to implement legislation to change their domestic payments market structure,” he said. “And we are still assessing all the elements of this new law. I mean, there are provisions there that I believe would create serious complications for the way that we can operate in that market."
Asked whether he thought Russia’s efforts to control outside influence from international card brands could spread, Banga noted that in Mexico the opposite is occurring. There, the government is opening up access to outside organizations for transaction processing, something that traditionally has been under the control of two domestic networks.
Separately, in Europe, where pending legislation would cap interchange, a recent write-up of the proposed law includes wording that would include commercial card interchange, something Banga indicated might be a mistake but, if included, provides both opportunities and challenges for the company. Also part of the legislation are rules requiring separation of management between card schemes and processing, which will make things more difficult for the card network but not impossible, Banga said.
“There is still opportunity for the proposed language to undergo changes, and we continue to expect that adoption is probably most likely in the first half of 2015,” Banga said.
Banga said MasterCard continues to work in China on partnerships with UnionPay, including on eCommerce and expansion of acceptance both inside and outside of the country, but he couldn’t say whether China someday would move from a closed market to an open one like the U.S.
Regardless of the political and policy unrest, MasterCard’s first quarter was a positive one. The company reported a 10% increase in worldwide first-quarter purchase volume, to $759 billion from $690 billion a year earlier, as the number of MasterCard- and Maestro-branded cards jumped over the 2 billion mark. Gross dollar value of MasterCard sales reached $1.05 trillion, up 11 percent from $947 million.
"Our first quarter SpendingPulse data showed U.S. retail sales ex auto growing at 2.8 percent, down from the 3.9 percent growth in the fourth quarter of last year,” Banga said on the call. “And I guess that reflects the harsh winter weather conditions that affected parts of the U.S. as well as a later Easter. But on a positive note, consumers continue to spend more. And so interesting sectors like airlines, lodging, restaurants, furniture and furnishings and that reflectively increased consumer confidence we saw in the quarter."
Processed transactions for the quarter were up 14 percent, to 9.8 billion, while cross-border volume rose 17 percent, MasterCard said.
As a company, MasterCard reported net revenue for the quarter of $2.18 billion, up 14 percent from $1.91 billion. Net income also was up 14 percent, to $870 million from $766 million.
For U.S. credit and charge programs, purchase sales volume totaled $138 billion, up 8.7 percent from $127 billion during the same period last year. Payments transaction volume totaled 1.51 billion, up 4.9 percent from 1.44 billion. Cash volume rose 16.7 percent, to $7 billion from $6 billion, while cash transaction volume remained stead at 6 million.
Through March 31, there were 147 million U.S. credit and charge card accounts, up 5 percent from 140 million a year earlier. Total U.S. credit cards were 181 million, up 3.4 percent from 175 million.
For International credit programs, payments volume totaled $381 billion, up 8.9 percent from $350 billion. Payments transaction volume totaled 4.62 billion, up 13.2 percent from $4.08 billion. Cash volume held steady at $48 billion. Cash transaction volume rose 3.7 percent, to 198 million from 191 million.
Through March 31, there were 500 million non-U.S. credit card accounts, up 5.5 percent from 474 million a year earlier. Total non-U.S. credit cards were 566 million, up 5.2 percent from 538 million.
For U.S. debit programs, payments volume totaled $130 billion, up 2.4 percent from $127 billion. Payments transaction volume totaled 3.21 billion, up 9.9 percent from 2.92 billion. Cash volume totaled $44 billion, up 7.3 percent from $41 billion. Cash transaction volume rose 3.4 percent, to 305 million from 295 million.
Through March 31, there were 157 million U.S. debit card accounts, up 12.1 percent from 140 million a year earlier. Total U.S. debit cards were 162 million, up 13.3 percent from 143 million.
For non-U.S. debit programs, payments volume totaled $110 billion, up 18.3 percent from $93 billion. Payments transaction volume totaled 2.34 billion, up 29.3 percent from 1.81 billion. Cash volume totaled $186 billion, up 14.8 percent from $162 billion. Cash transaction volume rose 22.7 percent, to 1.46 billion from 1.19 million.
Through March 31, there were 390 million non-U.S. U.S. debit card accounts, up 29.6 percent from 301 million a year earlier. Total non-U.S. debit cards were 401 million, up 29.4 percent from 310 million.