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MasterCard Targets Strong Growth through New Partnerships

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Opening of Chinese markets

China is expected to open its market for payment processors in 2016. The country is yet to release its final regulations for opening a domestic market. MasterCard (MA) is executing its plans to be technically ready to process domestic Chinese transactions by the end of 2016.

On the partnership front, MasterCard continues to sign new agreements in the co-brand space. In the United States, MasterCard confirmed its agreement with JetBlue to launch a new co-brand credit card. The issuing bank will be Barclays. Internationally, the company finalized a deal with Cits, the largest travel company in China, and Cole, the largest supermarket chain in Australia. The company has also co-branded with Russia’s largest airline, a partnership with Citi for an affluent co-brand with a large global airline based in the Middle East.

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Revenue expansion

MasterCard registered 2% growth in revenues for the third quarter of 2015. However, adjusting for the foreign exchange impact, revenue expanded by 8%, reflecting a huge impact on adverse exchange movements. If the Federal Reserve further hikes interest rates in 2016, the dollar is expected to remain strong in the next few quarters, which could impact MasterCard’s revenues.

In 3Q15, domestic assessments grew by 9%, cross-border volume fees grew by 11%, and transactions processing fees increased by 16%, partially offset by 27% growth in rebates and incentives. Transaction processing fees were driven by safety and security products and the Applied Predictive Technologies (or APT) acquisition.

MasterCard achieved net profit margins of 38% in the last fiscal year. Here’s how some of MasterCard’s peers in the payment processing industry fared with their net margins in the last fiscal year:

  • Visa (V) – 46%
  • American Express (AXP) – 16%
  • Fidelity National Information Services (FIS) – 11%

Together, these companies form 2.3% of the Technology Select Sector SPDR ETF (XLK).

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