MasterCard Inc.'s (MA -0.07%) recent investor day spanned nearly five hours of presentations, question and answer sessions, and analyst meetings with management. In no uncertain terms, much of it was the same information repeated over and over again.
Culled from those hours full of content, here are the five most important takeaways for MasterCard investors:
1. On consumer adaptation and Apple Pay
Make no mistake, Apple Pay was a massive part of this year's investor day. It's not surprising: Apple Pay could have huge implications for payment processors when it comes to driving small-sized transaction volume.
Ed McLaughlin, the company's chief emerging payments officer, pointed out that consumer habits are quick to change: "What we have seen in markets around the world is once the consumer taps more than two or three times using their card, they never go back to the prior behavior."
Later, executives noted that in Australia, roughly half of transactions under $100 were contactless. The shift that happens evolves quickly, and it only takes a few uses for consumers to become comfortable with new technology. Thus, Apple Pay's adoption could be significant for MasterCard Inc., with the results showing up immediately.
2. Debit cards are a waste of time
Regulations surrounding the fees processors could charge for debit transactions forever changed the game in the United States. The margins on pin-based debit transactions are tiny, as Chris McWilton, president of MasterCard North America, pointed out:
We are very thoughtful about chasing pin debit deals in the United States. I think I have been pretty public that we are not to going to chase all pin debit transactions, just for the sake of having a pin debit transaction. They are very thin economics. We are talking pennies or less than pennies or fractions of the penny per transaction.
It's worth noting, though, that signature debit transactions are still lucrative, as they're completed over the MasterCard network. To recap, the Federal Reserve website has an interesting breakout of average fees by transaction type.
In my mind, the only value in a pin debit transaction is adding volume to the network, which inevitably makes it harder for merchants to avoid accepting MasterCard-branded cards. But in terms of direct dollars and cents, debit provides no immediate value to MasterCard.
3. Tokens, tokens, and more tokens
No, you're not at an arcade. You're following the payments industry. And payments today are all about tokenization -- the process by which account numbers and other sensitive information is replaced with a "token" to prevent data theft and fraud.
When asked if the ability to use tokenization is a revenue opportunity, executives noted that revenue isn't the goal. McWilton defined its limited economic impact to the company: "[I] don't necessarily see it as a tremendous revenue producer or for the company; I don't think Martina or anybody at the top levels having significant revenue growth on the tokenization platform."
Rather, MasterCard believes that tokenization abilities should allow it to more quickly take over cash transactions, as it results in a safer transaction for businesses and customers. Most notably, tokenization plays an important role in convincing customers to use mobile-based payment options.
4. On beating its rivals in global transactions
Payments rival Visa (V 0.10%) has experienced hard times in cross-border transactions. This much was clear from Visa's latest conference call. But MasterCard has done well in the space, and analysts want to know why the divergence exists.
Gary Flood, president of Global Payments and Solutions, attributed it to MasterCard's focus on cross-border transactions:
Well, I think just on cross-border, cross-border has been a focus for us, pretty intense focus for a couple of years. We actually organized the team centrally to concentrate on that to work with our clients and to work with merchants on enabling experiences for buyers and sellers of cross-border. We have also spent a lot of time zeroing in on the things that weren't working it could be things like approval rates, declines, which were probably too high in that space.
Cross-border transactions aren't just another line-item. They're more profitable for the payment processors, since each transaction results in two fees: a processing fee, and a foreign currency translation fee.
5. The economics of Apple Pay are uncertain, particularly over the long term
No payments industry executive has yet to let the underlying economics of Apple Pay out of the bag. However, one question at MasterCard's investor day puts the product and its impact into terms in a way that investors should ponder for months -- and years -- to come.
A William Blair analyst asked pointedly: "[T]here has been discussion about Apple (AAPL 0.07%) getting 15 to 25 basis points of the interchange and I just wondered what your thoughts were on how that might affect pricing in the industry and who is going to lose that share of the payment pie."
This may have been the most important question of the day, as it centers purely on MasterCard's ongoing pricing power in a payments industry that is rapidly changing.
Don't hyperfocus on Apple Pay. This isn't just about Apple Pay alone -- it's about MasterCard's pricing power in a new environment where mobile platforms can skim a few pennies off every transaction.
While you shouldn't underestimate MasterCard's ability to get billions of its cards in consumer's hands, you shouldn't underestimate technology players' interests in getting their slice of the payments pie, either.
