In Depth

MasterCard CEO Touts Security Features of Apple Pay, MasterPass

Higher consumer spending helped MasterCard to a strong fourth quarter earnings Friday (Jan. 30), posting a better-than-anticipated profit increase of 29 percent to $801 million, year over year. Quarterly results also included a 14-percent revenue increase to $2.4 billion.

But perhaps the most interesting talking points to come out of last week’s earnings call — at least from a payments industry perspective — was CEO Ajay Banga’s comments about tokenization, Apple Pay and MasterPass. Apple Pay came up more than once during the earnings call as Banga touched on the security perks of it, and suggested that its own MasterPass would keep up the necessary security measures seen in Apple Pay.

“But we are very focused on — tokenization. … It’s a very important aspect of where we’re going for safety and security. Apple Pay was the first version of that to come out. We’re putting it into MasterPass, just regular MasterPass over the next few — period of time, let me put it that way, so I don’t give you information that’s beyond what is likely, and that will be–you’ll see in a year or two’s time, tokenization will become kind of fiddlesticks in the game on e-commerce,” Banga said.

As tokenization was a key talking point during Visa’s earnings call, an analyst with Citigroup asked about Mastercard’s timeline for tokenization for online browser-based purchases. Banga discussed MasterCard’s innovation in the digital space, NFC capability and EMV and chip migration.

“You know, before the digital space, if you kind of divide it up between in-app, contactless and online browser, contactless is still relatively small in the U.S., online browsing tends to be dominant. A number of the merchants and retailers have been launching their own apps in an effort to get people to come straight to their storefronts and then hopefully control more of the transaction as well as the relationship with the consumer when they’re inside their app, as compared to coming through search or another channel. So it depends who you believe, but everybody is making projections based on whatever they think about where these three aspects of commerce will go over the next few years,” Banga said.

“My sense is you’re going to get NFC growing decently, particularly with terminalization, and I believe terminalization will happen with all the EMV and chip migration as well as the fact our new terminals are coming contactless-equipped, so you’re probably seeing a two or three-year cycle of a fairly dramatic increase in contactless-equipped terminals in the United States.”

Comparing the major card issuers, Banga also spoke in general about how card companies are adapting to the mobile transaction trend and how they are keeping up with technology innovations.

“You’ll get a lot of efforts made around improving the use of easy use checkout wallets, whether it be MasterPass or Visa’s offering, or PayPal or other such offerings. And I think you’ll get all of those getting a degree of capability built with tokenization just making it safer and safer over the next few quarters,” he said. “So we’re all working on similar things, and I don’t think you should read too much into a quarter here or a quarter there. These things are slow burns. You saw Apple Pay talk about their mobile payment growth, and at the end of the day, yes, they’ve done a great job and it’s excited the market, but it’s still a very small percentage of what the total number of transactions are.”

Looking back toward specific earnings figures, the biggest revenue driver for MasterCard was attributed to the higher share of consumer spending during the holiday season quarter that helped push transactions 11 percent to $11.6 billion. Gross dollar volume also saw an increase of 13 percent to $1.2 trillion. Visa also posted a better-than-expected earnings report, posting revenue for the quarter of $3.4 billion, up 7 percent from the prior year, and a profit increase of 11.5 percent to $1.57 billion. MasterCard’s worldwide purchase volume increased 12.1 percent to $858 billion in local currency terms Q4, while its cross-border volumes rose 19 percent.

“Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014,” Banga said. He told The Wall-Street Journal the week prior to its earnings report that consumers and banks were still moving with caution during the economic recovery, which is contributing to good credit trends in the U.S. He noted during last week’s earnings call that they haven’t seen any indication that lower gas prices have helped fuel other discretionary spending.

Overall retail sales for MasterCard in the month of December helped the quarter end strong as retail sale rose 5.5 percent from Black Friday through Christmas Eve. But December wasn’t representative of the entire quarter.

“While overall retail spending growth softened in the quarter, underlying economic indicators did remain positive with unemployment levels and consumer sentiment both showing some improvement. Looking at our own U.S. business, as we have said for the past couple of quarters, the Chase de-conversion is having an impact on our U.S. GDP growth rate, but if we take that out, the underlying growth remained roughly the same over the course of 2014,” Banga said during the company’s call with analysts.

MasterCard acquired a handful of companies during last quarter, which included 5one Marketing Limited — a marketing, analytics and consulting firm that focuses on working with large retail clients across various consumer sectors. Banga offered some insight about this acquisition and its value to MasterCard in terms of working with merchants.

“5one has some proprietary software. They have used that to develop insights from a retailer’s own data that can be used for marketing, for merchandising, and for operational decisions,” he said. “You take that and you combine that kind of in-depth merchant understanding with our existing advisors’ capabilities, and I think that will allow us to provide greater insights to retailers and the ability to expand our business opportunities with the merchant community.”


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