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VOL. 126 | NO. 215 | Thursday, November 3, 2011

MasterCard Q3 Profit Up 38 Pct as Card Use Rises

EILEEN AJ CONNELLY | AP Personal Finance Writer

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NEW YORK (AP) MasterCard Inc. said Wednesday its third-quarter profit soared 38 percent on a big spike in card use around the world.

The most pronounced growth was in debit cards. In the U.S., use of MasterCard-branded debit cards rose 23 percent, compared with just 7 percent for credit cards. By comparison, rival Visa, which has a far bigger share of the domestic debit market, said last week that debit purchase volume rose about 8 percent.

The debit card side of the card industry is experiencing a shakeup. New U.S. regulations limit the fees banks and payment processors like MasterCard and Visa can charge retailers for handling debit card purchases, setting a cap of about 24 cents per transaction, versus the previously unregulated average of about 44 cents. And merchants will be allowed to choose which network processes their transactions. That choice was previously made by the merchant's bank. The rules started to kick in Oct. 1.

The changes give MasterCard an opportunity to take even more business from Visa. The Purchase, New York-based company has poached Visa clients such as Huntington Bancshares and SunTrust Banks over the past year.

But CEO Ajay Banga won't resort to a full-court press to win new debit card business. Banga aims to keep the business MasterCard has, while looking for "strategic and surgical opportunities" to convert a bank to the MasterCard brand, he said during a conference call to discuss results.

Jefferies & Co. analyst Jason Kupferberg likes the measured approach. "I think they're going about it the right way, especially at this early juncture," he said, noting that the merchant choice portion of the law doesn't fully take effect until April.

For the three months ended Sept. 30, MasterCard reported net income of $717 million, or $5.63 per share. That compares with $518 million, or $3.94 per share, for the year-earlier period.

Revenue jumped 27 percent to $1.82 billion, from $1.43 billion last year.

Analysts, on average, had forecast profit for MasterCard of $4.81 per share, on revenue of $1.7 billion, according to data provided by FactSet.

The results outpaced the performance of Visa, which had a rare miss on revenue forecasts last week. MasterCard shares shot up $24.30, or 7.3 percent, to $358.60 on heavy volume. The stock closed Tuesday up 49 percent for the year.

The company said third-quarter purchase volume, the amount spent on debit and credit cards, rose 17 percent worldwide to $628 billion.

In the U.S., spending was up 13 percent to $227 billion. That included a 7 percent gain in credit card spending to $130 billion, and a 23 percent spike in debit spending to $97 billion. The number of open credit card accounts rose 2 percent to 147 million, while the number of debit accounts jumped 11 percent to 126 million.

Even with the rapid growth in card use, 85 percent of worldwide spending still takes place in cash. During the conference call, Banga repeated his goal of converting much of that to electronic payments. He outlined deals MasterCard has made with government programs to use prepaid cards to distribute certain benefits, including a child support program in South Carolina and unemployment insurance in Illinois. And he pointed to a series of new programs, like mobile payments in Latin America and new prepaid ventures in Italy, as examples.

In Australia, most banks are now issuing cards that can be used for purchases that don't require swiping at a number of convenience and fast food changes. And in the U.K., a public transport operator will soon be able to accept contactless payments on buses.

"These are cash-heavy channels that will be replaced with electronic payments," Banga said.

A closer look at MasterCard results reveals that some of the increased card use is likely by cash-strapped card holders trying to best manage their money, and perhaps to take advantage of rewards programs.

Visa and American Express Co., for example, said much of the higher spending in the U.S. they saw last quarter came from affluent card users, a cause for some concern as it reflects broader weakness for the economy.

Chief Financial Officer Martina Hund-Mejean acknowledged that MasterCard data points to some increased spending on electronics and luxury goods, which would reflect more affluent card users. But spending on gasoline and groceries also rose. That likely indicates shoppers confronting some inflation at the pump and in supermarket aisles. And she noted that those who are employed and confident in their jobs, while not necessarily affluent, are continuing to spend.

More than half of MasterCard's revenue comes from outside the U.S., and card use rose nearly 20 percent abroad. Big increases in purchases in Latin America and the Asia-Pacific-Middle East region led overseas gains. The company's worldwide footprint has helped to partially insulate it from economic woes in the U.S. and Europe. Banga credited new processing deals in Brazil and the Netherlands with helping to boost profit for the quarter.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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