Why Is MasterCard Targeting International Partners for Growth?



International partnerships

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 plan 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 partnership with General Motors (GM) to integrate digital enablement systems into GM’s OnStar platform.

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 and is in a partnership with Citi for an affluent co-brand with a large global airline based in the Middle East.

MasterCard achieved net profit margins of 38% in fiscal 2015. Here’s how some of MasterCard’s peers in the payment processing industry fared with their net margins in fiscal 2015:

  • 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).

Revenue expansion

MasterCard registered 4.3% growth in revenues for the fourth quarter of 2015. However, adjusting for the foreign exchange impact, revenue expanded by 9%, 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. That could impact MasterCard’s revenues.

In 4Q15, domestic assessments grew by 5%, cross-border volume fees grew by 9%, and transaction processing fees increased by 8%. This was partially offset by 21% growth in rebates and incentives. Transaction processing fees were driven by safety and security products and the Applied Predictive Technologies acquisition.

Next, we’ll see how MasterCard is funding acquisitions and growth.

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