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Drop in cross-border transactions impacts Mastercard’s Q3 earnings

credit card, mastercard

Mastercard Inc. reported a 30% YoY drop in profits and a 14% YoY fall in revenues for Q3 as cross-border transactions on the card network fell significantly between July and September this year. The global card network giant said that the fall in revenue was attributed to the Covid-19 impact and also flattish growth in rebates and incentives.

“Mastercard has been focused on helping merchants, banks, fintechs, governments and consumers with products and services to navigate the pandemic. We are seeing encouraging progress in the trajectory of domestic spending, while travel spending remains a challenge,” said Ajay Banga, chief executive officer, Mastercard in press release.

Outlook on travel and cross-border transactions

During the earnings call, Banga said that while they are seeing some improvement in domestic travels, cross-border travel remains constrained.

We believe travel improve and consumer confidence recovers as a result of improved testing and safety protocols being put in place, medical advances occurring and as border restrictions are lifted, and there is increased international coordination of travel cross-borders. When cross-border travel does improve, we will be very well-positioned to capitalize on that recovery. – Ajay Banga, Mastercard CEO

“But, we’re not out of the woods yet,” he said as countries in Europe, for instance, were re-imposing restrictions which meant that progress through phases going forward may not be linear. “When cross-border travel does improve, we will be very well-positioned to capitalize on that recovery,” he added.

Focus on electronic payments

According to internal research, 7 in 10 people globally say they will permanently shift electronic-based payments in the wake of the Covid-19 pandemic. “Our research also shows that about 60% of consumers plan to use less cash, even after the pandemic subsides. As a result, merchants are becoming more digital and consumers and businesses are adapting how they interact at the point of sale, both in-person and online,” said Michael Miebach, chief product officer, Mastercard. He added that card tokenisation has also gained traction, with the number of tokenised transactions doubling over the last year.

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Consumers want choice. Whether they want to pay using contactless, card-on-file, QR or via installments, we are enabling that choice. Contactless growth continues to be fueled by increasing consumer adoption. In the third quarter, contact-less penetration represented 41% of in-person purchase transactions globally, up from 37% in the second quarter [this year] and 30% a year ago – Michael Miebach, chief product officer, Mastercard.

While Miebach will replace Banga as CEO from January onward, Banga will takeover the executive chairman position from Richard Haythornthwaite, who has served as the chairman since May 2006.

As electronic-based or contactless-payments have become preferred payment method for consumers, the company has been focusing on this shift through their bank, fintech, neobank and merchant partners, said Banga. On the other hand, on the core-business of cards Mastercard plans to offer new and renewed deals to drive growth, he said.

Banking on global partnerships for growth

To capitalise on the return to travel, Miebach said that the company has partnered with international airline Emirates on the first co-branded credit card and a renewed co-brand agreement with Miles & More, a Europe-based loyalty frequent flyer program for their German portfolio.

In India, Mastercard launched a point-of-sale capability with Worldline India and Axis Bank that will allow the banks’ customers to use their smartphone at POS terminals and accept contact-less and remote payments, Miebach said. Further, the company has tied-up with Samsung, Airtel Africa and Asante in Africa to provide digital financing for consumers, entrepreneurs and merchants, he said.

Mastercard has also expanded its neo-bank portfolio in Brazil, Mexico and Colombia and has also signed several deals with neo-banks like Nickel in France and Bnext in Spain, Miebach said. In the United Kingdom, Mastercard launched an app called ‘Pay By Bank’ where it aims to gain a market share of one-third of  UK mobile banking customers enabled going forward as HSBC UK has already on-boarded customers and Barclays is set to launch the service. Similarly, the company has a bill payment service called Mastercard Bill Pay Exchange in the US which “will now have access to approximately a third of bills paid annually in the U.S. and be able to reach about a quarter of active U.S. Bill Pay consumers,” he said.

Financial Snapshot

Growth in overall cross-border volumes, fell to 39% YoY in July to improve only to 30% by October-end. While growth intra-Europe cross-border transactions fell 25% in July it improved to 15% in October-end, growth in other-cross border transactions fell 51% in July only to improve by 44% by October-end, according to its investor presentation.

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Mastercards’ credit, charge and debit programs witnessed a deceleration as growth fell the most by 22% YoY to $88 billion in Latin America, followed by Canada at 3.8% YoY to $45 billion, and in Asia-Pacific Middle-East and Africa (APMEA) by 1.5% YoY to $483 billion at the end of September 2020.

In the United States, the credit, charge and debit program grew by 4% YoY to $513 billion while in Europe it grew by 2% YoY to $518 billion, during the same period. Interestingly, while there was a de-growth in credit card transactions by 10.3% YoY worldwide to $737 billion, the debit card program grew by 9.6% YoY to $911 billion.

  • Gross Dollar Volume grew to $1,648 billion (up by 1% YoY)
  • United States’ GDV grew to $513 billion (up 4%), while Rest-of-World growth in GDV growth was marginal at $1,159 billion
  • Total card issuances grew to 2.69 billion (up by 5% YoY)
  • Total revenue fell to $3,837 billion (down by 14% YoY)
  • Net income fell to $1.5 billion (down by 28% YoY)

Investor Presentation | Financial results | Transcript

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