MasterCard Gets Higher Profit as Credit Card Use Rises

MasterCard, the second biggest global credit card network after Visa, has reported the increase of profit in the 1st quarter of 2008. The company's shares immediately rose about 14 percent. The boost of revenue was caused by the increased number of domestic and foreign transactions. New overseas markets have become very profitable for the company. The number of credit card holders using MasterCard plastics for purchases outside the United States has significantly grown. Card holder spending within the United States is rising as well, but at a more moderate pace.

MasterCard's profit more than doubled in the first quarter of 2008. According to the financial reports, the company earned $446.9 million or $3.38 per share for the period from January to March. During the same period last year, the company earned $214.9 million, or $1.57 a share. The revenue increase was a result of a 14.1% increase in the company's gross dollar volume, a 15.7% increase in the transaction volume, and a 23.6% increase in cross-border transactions.

The biggest part of MasterCard's revenue was generated from overseas transactions. The company is less reliant on the U.S. than Visa, which receives about two-thirds of their income from domestic transactions. The credit card markets abroad are developing faster than the U.S. ones. Such regions as Latin America, the Middle East and South Asia saw a significant growth.

Meanwhile, purchase volume with credit cards in U.S. is rising as well. Due to the collapse of the subprime mortgage market and the following financial crisis, consumers use their plastics as a main source of getting money: they have few other alternatives. That's why the consumers spending habits are changing. Credit card holders tend to shift away from purchasing luxury items, such as home furnishings, towards everyday necessities, for example groceries or gasoline. And higher prices mean more spending.

MasterCard is working harder trying to capture more of the electronic payments space in the United States. They hope to make their plastics accepted by American public utilities, health care providers and rental companies. It is no surprise that many Americans spend a lot of money for these services even in the times of economic collapse. However, the merchants in these areas prefer to accept checks instead of credit cards. By getting their plastics accepted, MasterCard will significantly increase their transaction volume and attract new customers.

MasterCard credit card use by travelers in foreign countries also benefited the company. Lots of Americans still travel abroad on business or for pleasure. They prefer using credit cards instead of paper-based forms of payment. Cross-border transaction volume rose about 24 percent. The revenue growth was also caused by the increase of cross-border acquiring fees which was implemented in the beginning of the year.

The increase of MasterCard's profit exceeded the expectations of financial analysts. The company is encouraged with their first-quarter financial results: they are high despite continued economic uncertainty and repercussions from the housing market crisis. The dramatic U.S. spending slowdown is still a risk for the company and their rivals, for example Visa credit cards or American Express credit cards, but the international presence should compensate them any possible slides.