MasterCard Executive Earnings Insights: The Fed’s Fees Comment, U.S. Transactions Processing

On Wednesday, MasterCard Inc (NYSE:MA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Fed Fees Comment

David Hochstim – Buckingham Research: Yesterday the Federal Reserve put out some updated data on debit interchange. I wondered if you could comment about their observation that network fees paid by large issuer seemed to have declined from 2009 to 2011. Obviously didn’t talk about acquirer fees or any other pricing changes you made, your pricings held up, but I just wonder if you have comment on what the Fed seems to be suggesting?

A Closer Look: MasterCard Earnings Cheat Sheet>>

Martina Hund-Mejean – CFO: David, I’m going to take that one. First of all, as you said the results were only released yesterday so we are still working through the details in terms of what was really released, but when we are looking at the published network fees there seem to be some potential disconnect in the comparisons and we want to understand those before we draw any conclusion. So, I am going to give you a couple of disconnects that we need to understand. So, first of all, the fed compared the network fees in the fourth quarter of 2011 with full year 2009. As you know any fourth quarter is usually a high spend quarter, so issuers will pay effectively lower fees since core fees are tiered based on volume. We can’t really compare a fourth quarter to a full year and that’s one thing we just going to have to deep dive into it bit more. The second thing is the fed had actually request a different categories of network fees for each of these period, so the calculation and the comparison of the per cost transaction is unclear. In 2011, I can tell you the Fed had asked the networks to provide only (indiscernible) and settlement fees. Back in 2009, we provided all fees collected on a transaction, so therefore the network fees that have been compared in the report might be apples and oranges. The last thing I want to tell you is that we have actually not changed our fee structures to issuers on the debit business. In fact, as you know, in every quarter we are going after business very surgically and opportunistically and we’re signing deals both signature and PIN deals in every quarter as quite frankly you can see those results in our numbers today. So, lots more to clarify but I told you as much as we know at this point in time.

U.S. Transactions Processing

Christopher Brendler – Stifel Nicolaus: I was just wondering if you could give us a little more detail or more color on the U.S. process transactions processing. I think you said it was globally above 30% in April and some benefit from April 1 exclusivity provision. Can you give us any color on what your U.S. volume looks like in April on a process transactions basis and where you’re seeing those gains?

Martina Hund-Mejean – CFO: Look, April is very similar to the first quarter, but it’s a higher growth rate, right. So the growth rate in first quarter was 29%, in April we’re seeing 32%, and the growth is both benefited by what’s happening in the United States as well as the Netherlands, but very, very typical trends. In the 29%, by the way that we saw in the first quarter, we believe that a fairly significant portion, probably in the neighborhood of 13 percentage points, is due to new deals and really adds to what we need to be doing in the market. April is not shaping up any different, it’s the same, just continue to get the business.

Christopher Brendler – Stifel Nicolaus: I guess my focus was more on PIN-debit business and how much that’s moving the needle in April?

Martina Hund-Mejean – CFO: Again, as I said before, it’s very similar to the first quarter. April is just an extrapolation for what happened in the first quarter, we’re seeing more PIN business.

Ajay Banga – President and CEO: You just got to remember that a lot of the cards that got enabled for PIN didn’t get enabled on the first day of January, they kind of got enabled over the course of the first quarter. So, over the next two, three, four quarters, you will get moving around on the PIN-debit transaction growth, because you will get cards coming on, but you’d also see routing changes as merchants and acquirers respond to what issuers’ networks do. So, it’s going to be a little bit of in and outs for the next few months, and that’s how we think about it, but our first task, as we said, was to get onto these cards and be enabled on them. That’s what we’ve been trying to do over the last few months and now our next task is to try and surgically manage as much of that routing as it makes economic sense for us that’s kind of how we are approaching this business.