MasterCard hit by fall in credit card spending

MasterCard hit by fall in credit card spending
By Saskia Scholtes in New York
Copyright The Financial Times Limited 2009
Published: May 1 2009 17:11 | Last updated: May 1 2009 17:11
http://www.ft.com/cms/s/0/398328f6-3668-11de-af40-00144feabdc0.html


MasterCard, the world’s second largest electronic payments processor, on Friday said first quarter profits fell 18 per cent on the back of a stronger US dollar and a sharp drop in US credit card spending.

First-quarter net income fell to $367.3m, or $2.81 a share, from $446.9m, or $3.38 a share a year earlier.

Robert Selander, chief executive of MasterCard, is cutting expenses to reach profit targets that are threatened as consumers spend less due to rising unemployment, banks cutting credit limits and lower gas prices.

US consumers in particular have become increasingly cautious about using credit cards. First quarter spending on US credit cards processed by MasterCard fell by 17.2 per cent from a year earlier.

Rival Visa has made up for similar declines in US credit card revenue with growth in US debit volumes, a market which Visa dominates in the US with a 75 per cent market share. MasterCard, however, has been unable to make up for lost US credit card transaction volumes in debit, where it has been unable to grow its US market share meaningfully amid the financial crisis.

“In normal circumstances we would expect to see a nice upward trajectory in debit,” said Martina Hund-Mejean, chief financial officer of MasterCard. “But for the banks, moving from one transaction platform to another requires an upfront investment from the banks – which they are just not in a position to do at the moment.”

Revenue declined 2.2 per cent to $1.2bn from a year earlier because of the stronger US dollar, which prevented MasterCard from benefiting from higher overseas credit spending and a worldwide increase in the use of debit cards. In local currency terms, net revenue increased by 1.8 per cent.

Payment processors such as MasterCard and Visa are insulated from rising credit card losses because they do not make loans, but receive a fee every time they process a card payment. However, their profits have been affected by a slowdown in consumer spending, even as consumers increase their use of electronic payment systems in preference to cash or cheques.

MasterCard has responded by aggressively cutting costs to maintain a 48 per cent operating margin. Operating expenses declined 11 per cent to $595m in the first quarter as MasterCard slashed advertising and marketing costs by 35 per cent and travel and personnel costs by 3 per cent.

The company’s shares were down 8.6 per cent in morning trade at $167.72.