Mastercard Rises on International Success
Matthew Cochrane, The Motley Fool
Motley Fool May 7, 2019
Mastercard (NYSE: MA) clocked in yet another quarter of rising revenue and earnings when it reported its first-quarter results late last month. The payment network's revenue rose to $3.89 billion, a 13% year-over-year increase, while adjusted earnings per share (EPS) grew to $1.78, a 24% increase year-over-year -- both growth rates given on a currency-neutral basis. The company's strong top- and bottom-line growth was driven by a 12% increase in gross dollar volume to $1.48 trillion and a 17% increase in switched transactions to 19.2 billion.
There was a lot for investors to digest in Mastercard's first quarter, including winning key co-brand card deals for Apple's Apple Card and T-Mobile's Money debit card. Because of these splashy new deals, however, investors could easily have missed some important long-term wins happening overseas. There seem to be three primary factors driving the company's international success:
Winning new deals based on its differentiated services;
Making key investments and acquisitions in up-and-coming payments companies with footholds in emerging markets;
Leveraging Vocalink, its near-$1 billion acquisition from 2017, to build out payments infrastructure in developing economies.
Let's take a closer look at these factors and what they mean for Mastercard's future.
Close-up of Mastercard showing part of the credit card number and the expiration date.
Mastercard's investments in foreign merchants and fintech companies are helping the payments network secure a number of new deals. Image source: Getty Images.
A number of international wins
During the company's conference call, CEO Ajay Banga made it a point to highlight the work Mastercard was doing overseas to diversify the company's customer base and strengthen its footprint in new geographies. He added, "We are building relationships with merchant, processors, digital players, and a number of other partners to help drive their businesses forward." These deals included:
A new co-brand card deal with Japan Airlines.
A new co-brand card deal with Falabella, the largest retailer in Chile.
A long-term agreement with BNP Paribas, a large international bank in France, that will convert more than 4 million cards to Mastercard. This agreement "will be accompanied by a full suite of services, including spending controls and alerts, as well as identity check mobile security features."
Converting 7 million private-label cards on the Cred-System in Brazil to Mastercard, for the purpose of driving international acceptance.
An agreement with Latin American e-commerce powerhouse MercadoLibre to "make their platform safer and more convenient with tokenization, seamless authentication tools and contactless prepaid card programs across Brazil, Argentina and Mexico."
An agreement with the Bank of Montreal to use Mastercard Send for its commercial accounts' cross-border payments, with additional plans for international cards and mobile wallets to come.
Most of these deals were made possible because of the number of supplemental services Mastercard can offer clients, including data analytics, fraud protection, and loyalty program management. These services, collectively bundled in Mastercard's Other Revenues segment, saw revenue rise to $842 million, a 14% increase year over year on a currency-neutral basis.
Mastercard's investments in emerging markets
Besides winning new deals, Mastercard continued to make investments in payments companies in developing economies. In the first quarter, Mastercard purchased a 10% stake in Network International, a Middle Eastern payment processing company, to advance digital payments in the Middle East. Banga added, "Mastercard will be Network International's preferred partner for processing, acceptance and value-added services with safety and security and data analytics."
Mastercard also made a multimillion-dollar investment with Jumia Technologies (NYSE: JMIA), an e-commerce retailer with a presence in 14 African countries. Banga said, "Our relationship with Jumia will include co-brand card issuance for consumers, as well as commercial payments on their platform and also the use of our payments gateway."
These investments followed last year's acquisition of Oltio, a South African mobile payment startup.
Vocalink's importance
Mastercard finalized its acquisition of Vocalink in 2017 for just under $1 billion. Vocalink provides instant electronic bank transfers across ACH (automated clearing house) networks. ACH networks are how most employees are paid when their pay checks are direct deposited into their bank accounts. It is also how most money is moved when, say, consumers transfer funds from their checking account to their savings account. The primary advantage of using ACH networks for money transfers is that they are cheap. The disadvantages are they cannot be used for cross-border payments and that they are typically slow, taking several days to be cleared and settled.
In the first quarter, Mastercard announced Vocalink would be powering the technology behind electronic bank transfer in the Philippines and enhancing Instapay, the country's instant retail payment system. Vocalink will also be licensing its software to Saudi Arabia, so that its electronic banking system can be upgraded to something resembling what American consumers enjoy.
Mastercard continues to impress, with another strong quarter in the books. What's important to remember is that many emerging economies are not nearly as saturated with electronic and digital payments as the U.S., meaning there are still plenty of greenfield opportunities around the globe. Mastercard's smart investments and acquisitions, including Vocalink, have positioned it exceedingly well to compete. The company's robust suite of services it offers financial institutions, makes it an extremely attractive card network for foreign banks to partner with. With Mastercard's global opportunities in mind, investors might want to see if there's room in their own portfolios for a stock that should continue to easily outpace the market.
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Matthew Cochrane owns shares of Mastercard. The Motley Fool owns shares of and recommends Apple, Mastercard, and MercadoLibre. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
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