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How MasterCard Maintains the Highest Margins in the Industry

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Higher incentives

MasterCard’s (MA) rebates and incentives have grown at a faster pace over the past few quarters in a bid to garner more partnerships and client spending. The company’s rebates and discount grew 20.0% to $1.2 billion in 3Q16 on a nominal basis. The growth was due to higher volumes and renewals of existing deals. In 4Q16, rebates and discounts are expected to see a mid-teen growth rate on the back of higher volumes and partnerships.

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MasterCard focuses mainly on corporate partnerships rather than investing in direct marketing efforts. The company’s advertising and marketing expenses have remained more or less constant at $184.0 million over the past year. However, its general and administrative expenses—which include network and processing, personnel, and professional fees—grew 16.0% to $933.0 million.

MasterCard saw total revenues of $9.5 billion in 2015. The company’s competitors in the industry posted the following numbers.

  • American Express (AXP): $35.9 billion
  • Discover Financial Services (DFS): $7.6 billion
  • Visa (V): $13.9 billion

Together, these companies account for 2.8% of the iShares Russell 1000 Growth (IWF).

Higher operating margins

Mastercard has managed the highest operating margins in the industry, backed by strong international and diversified growth and expense management, partially offset by higher rebates and a strong dollar. Excluding non-operating items, MasterCard posted an operating margin of 58% in 3Q16 compared to 54.1% in 3Q15. The company’s operating expenses rose 12% on a nominal basis in 3Q16.

MasterCard invested in digital services and geographic expansion. It saw higher personnel and data processing costs compared to 3Q15. For the full year, it’s expected to see an operating margin in the range of 54%–56%.

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