By Saabira Chaudhuri
MasterCard Inc.'s chief executive warned that sanctions on
Russia have had a significant impact there and that resulting
regulatory changes within the country could create serious
complications for the company.
Still, MasterCard posted a 14% jump in first-quarter profit as
cardholders made more purchases and the company said it is seeing
improved confidence in U.S. consumers. Shares climbed 2.5% in
morning trading as profit topped analysts' estimates.
On a call with analysts, CEO Ajay Banga said legislation likely
to be passed in Russia to change its domestic-payments market
structure contains provisions regarding on-soil requirements and
collateral for foreign-payment players, both of which could be
challenging for MasterCard.
"Russia will be complicated to work through," Banga said.
The company expects the situation in Russia to have a small
financial impact on its results for 2014, but said is hard to
quantify the impact beyond this year. Russia represents a little
over 2% of MasterCard's revenue.
Earlier this week, MasterCard, along with rival Visa Inc., said
it would pull the plug on at least two more Russian banks following
an expansion of U.S. sanctions. The move means holders of those
cards won't be able to make purchases with them, although
cardholders will still be able to get cash from automated teller
machines and offices of those banks.
Thursday, MasterCard posted earnings of $870 million, or 73
cents a share, up from $766 million, or 62 cents a share, in the
year-ago quarter. Revenue improved 14% to $2.18 billion. The growth
was driven by increases in volumes and processed transactions, and
offset by an increase in rebates and incentives.
Analysts polled by Thomson Reuters had projected per-share
profit of 72 cents and revenue of $2.14 billion.
MasterCard again warned that its revenue growth for the year
could come in at the low end of its three-year target of 11% to 14%
due to the loss of a consumer credit-card portfolio at J.P. Morgan
Chase & Co., as well as some impact from the tensions in
Russia.
Mr. Banga noted that in the U.S., consumers continued to spend
more in sectors like airlines, lodging, restaurants, furnishings
and furniture, reflecting increased confidence, although he also
said spending was affected by harsh winter weather conditions as
well as a later Easter. Meanwhile in Europe, MasterCard saw
improved consumer and business sentiment, with transaction growth
driven by countries like Russia, Sweden, Turkey and the U.K.
Mr. Banga said MasterCard saw "really no direct impact" from the
sanctions on Russia on consumer behavior in the first quarter.
"People were doing what they had to do," he said, adding that the
company was seeing some change on cross-border activity.
Cardholders made $1.05 trillion in purchases with MasterCard
cards in the quarter, an increase of 14% on a local-currency basis
compared with year-earlier results. The company logged a 17% jump
in cross-border volume, which measures payments made in one country
with a card issued by a bank in another country.
Rebate and incentive payments, which MasterCard pays to banks
when signing new contracts and renewing agreements, increased 12%
to $733 million. Higher rebates and incentives can be viewed as a
good sign for the company because it means it is winning new deals,
but it also can be a concern for investors who worry about banks
demanding better pricing from MasterCard, according to
analysts.
Operating expenses rose 12% to $892 million driven by rises in
all expense categories.
On the call, MasterCard said it had signed new agreements during
the quarter that will make it the leading debit brand in Sweden,
and the leading payment plan in the Baltics by the end of the year.
Those announcements come after Target Corp. said Tuesday its
store-branded debit and credit cards will be enabled with
MasterCard's so-called chip and PIN technology by early next year.
Existing Visa cards will be switched over to the MasterCard
network. Meanwhile in April, Wal-Mart Stores Inc. said its
co-branded credit cards will soon carry MasterCard's logo rather
than that of Discover Financial Services. MasterCard in recent
years has been fighting to win more co-branded partnerships to
boost transaction volume over its payments network.
MasterCard also said it expects a European regulatory proposal
that would limit so-called interchange fees that determine how much
merchants pay to accept credit and debit cards to be adopted in the
first half of next year. In addition to capping interchange fees,
the European proposal also would prohibit companies such as
MasterCard from tying, or "bundling," the sale of
transaction-processing services and card-branding services.
On the call, Mr. Banga said the legislation's current wording is
onerous in parts, noting that the latest version of these rules
looks to control fees on commercial credit cards in the same way as
those on consumer cards. He said MasterCard is discussion on issues
like this with regulators in Europe. "I continue to believe that
Europe is an enormous opportunity given that so much of Europe's
expenditure outside of the Nordics is still in cash," he said.
Michael Calia contributed to this article
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com