5 trends impacting MasterCard's value

Increasing mobile payments will help boost the company's transaction volumes.

By Trefis May 25, 2012 3:05PM
TrefisImage: Man paying with credit card © UpperCut Images/UpperCut Images/Getty ImagesMasterCard (MA) is one of the leading payment solutions companies in the world, and along with its main competitor Visa (V), it has a major share of the credit and debit card market across the globe.

With steady performances in the last few years, the company has inspired a lot of confidence from investors.

We look below at a few key trends that influenced our forecast for the company's stock price.

Mobile and cashless payments

Coinciding with the surge in popularity of smartphones such as Apple's (AAPL) iPhone and Research in Motion's (RIMM) BlackBerry, developments in mobile payment and Near Field Communication (NFC) technology are revolutionizing the way transactions are carried out. (See Banks and Wireless Carriers Get Serious About Mobile Payments.)

MasterCard recently unveiled its digital wallet services, PayPass (See Wallet Services Provide A Glimpse Into MasterCard's Future), and has also been in coalition with Isis and Google Wallet, as it seeks to capitalize on the technological advancements in the field.

We expect mobile transactions to have a positive impact on the transaction volumes processed by the company. Transaction fees account for 22% of our price estimate for MasterCard's stock.

Mastercard Total Transactions Processed

Debit cards gaining popularity

The number of debit cards issued across the U.S. has been increasing over the last few years as customers in the recovering economy prefer to spend money from their own accounts rather than purchase on credit. Aggressive marketing has led MasterCard to a prime position to benefit from this trend as over half the debit cards issued through the U.S. now carry the company's logo. Transactions through debit cards saw a 24% growth over the last year and account for 36% of MasterCard's Gross Dollar Volume. We expect debit card transactions to continue to grow through the Trefis forecast period.

Penetration in growing economies

Even as European economies look ready to plunge back into recession, markets across Asia such as India and China are still experience strong economic growth. MasterCard, with its global reputation, seeks to penetrate into these markets and is likely to see an increase in cross-border transaction volumes as international trade in this region continues to grow.

Emerging markets in the Asia Pacific, Middle East and Africa region account for 25% of MasterCard's worldwide Gross Dollar Volume.

Mastercard International Transaction GDV

Olympics and the UEFA Euros

The world is set to witness two major sporting events this summer, with both the Olympics and the UEFA Euros set to take place in Europe. We expect the fanfare surrounding these events to provide a much needed shot in the arm to the region's economy. Increased tourism and merchandise sales are expected as fans across the world seek to support their favorite teams and athletes.

Regulatory Reforms

Amendments to the Dodd-Frank financial overhaul bill, passed last year, have limited the fees charged by MasterCard per transaction. The interchange fee in particular has been limited to 21 cents per transaction, a reduction from the earlier limit of 44 cents.

Mastercard Authorization Settlement and Swicth Fee per Transaction

Our price estimate for MasterCard is $465, 12% above the current market price.

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