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Understanding MasterCard’s Target Markets in 2017

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Targeting partnerships

Mastercard (MA) is looking for more partnerships with corporates and institutions involving preferred payments and technology solutions in a bid to expand its clientele and spending methods. The company expanded its existing partnerships with US Bank and Regions Bank in 3Q16. The expansion includes preferred MasterCard routing for its personal identification number debit business. The company is also continuing strongly with its consumer credit co-branding deal with PayPal (PYPL).

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Internationally, MasterCard is targeting more business from China, as the country is expected to open its market for global payment processors. Currently, the company is in talks with China’s central bank for a detailed interpretation of regulations, newly introduced security provisions, and how they can impact the company’s implementation of USAA switching.

Mastercard has signed new deals in China with various banks, including ICBC (Industrial and Commercial Bank of China), China Construction Bank, HSBC Bank, and Postal Savings Bank of China.

Outside China, Mastercard has expanded its deal with Poste Italiane by converting a significant portion of its prepaid portfolio. In Turkey, the company has partnered with Turkey’s DenizBank to flip its credit business, which also leverages advisors.

MasterCard posted a net profit margin of 38.0% last year. Here’s how some of its competitors in the industry performed with net margins:

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

Together, these companies form 2.7% of the Technology Select Sector SPDR ETF (XLK).

The dollar’s negative impact

MasterCard’s international revenues have been impacted negatively by a strong dollar. In 4Q16, this trend is expected to continue as the Fed is eyeing further rate hikes in 2017. Mastercard registered a rise of 14.0% in revenue to $2.9 billion in 3Q16, deriving strength from international markets. It saw domestic assessments growth of 10.0%. Cross-border volume fees growth of 13.0%, and transaction processing fees growth of 19.0%.

Next, we’ll see how Mastercard is funding its organic and inorganic expansion in 4Q16.

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