Mastercard's Second-Quarter Earnings Increased 51%. Will the Growth Continue?

Payment processor Mastercard (MA -0.47%) was a standout among some pretty impressive financial-sector earnings results. Earnings soared by more than 50% on strong payment volume growth and successful international expansion.

In this clip from Industry Focus: Financials, host Shannon Jones and Fool.com contributor Matt Frankel give a rundown of Mastercard's second quarter, as well as what could be the big drivers of the company's future growth.

A full transcript follows the video.

This video was recorded on July 30, 2018.

Shannon Jones: Let's shift gears and talk about the underdog here. I almost hate to use that term when it comes to MasterCard, but, just in terms of relative size and scope. MasterCard also just reported earnings. How did they fare in their second quarter?

Matt Frankel: You mentioned that MasterCard is about 50% smaller than Visa (V -0.14%), in terms of the number of cards that exist with MasterCard logos on them. But, the other way to think about that is, MasterCard has more room for growth. It looks like that's exactly what's happening. You mentioned Visa's numbers. Believe it or not, MasterCard's were actually a little bit better.

They grew revenue by 18% year over year. Because of that combined with the effects of tax reform, their earnings shot up by more than 50% year over year, which is pretty incredible for a company of that size. Payment volume was up by 14%. Just to recap, Visa's was 11%. The number of cards in existence shot up by 5%, as opposed to Visa's 4%. And, they matched Visa in international growth with a 16% growth rate, which is pretty impressive all by itself.

MasterCard has been doing a great job of making acquisitions that add value over the past couple of years. If anything, I would call MasterCard the more aggressive acquirer out of the two. Acquisitions are definitely more of their strategy than Visa's. MasterCard has really been taking advantage of its growth opportunity when it comes to things like e-commerce and the rise of card payments worldwide, and it's really showing in the numbers this quarter.

Jones: Absolutely a phenomenal quarter for MasterCard, as well. Just like you mentioned, Matt, MasterCard is really strategically investing in technology, and you are starting to see that pay off. But, I think the growth runway is much, much longer for them.

In particular, there were a couple of acquisitions that not only expanded MasterCard beyond its core, but also enhanced and will be enhancing its capabilities moving forward. Last year, MasterCard actually bought out VocaLink. This was really to expand MasterCard beyond their traditional retail setup, where you have your person-to-merchant setup, and really gave MasterCard an opportunity to dive in to peer-to-peer and business-to-business payment networks.

Also, you've seen this with MasterCard integrating its network with Zelle and PayPal's Venmo. As a matter of fact, MasterCard is actually behind the new Venmo consumer debit card, which will basically enable Venmo users to cash out their balances and use those funds, either online or in stores wherever MasterCard is accepted. There are so many firsts that MasterCard is going after and have done. Masterpass, that was rolled out not too long ago, was the first network to have a digital payments service across all devices and all channels.

You mentioned security and fraud for Visa. MasterCard is really stepping it up with that. They've been investing in several different things, one of which was artificial intelligence. They'll also be rolling out a biometric card, which will combine the chip technology with fingerprint scans and even iris scanning on a mobile phone to verify online purchases.

What you're seeing is MasterCard invest heavily in technology, investing in its future, and I think it looks pretty bright. I also agree, they are extremely aggressive when it comes to investing in the next big wave, into how to differentiate themselves from Visa. I think, ultimately, MasterCard is really set to dominate that war on cash that's happening right now.

Frankel: MasterCard, like you mentioned, is really doing a good job with the peer-to-peer payments, especially Venmo. Michael would be very proud of me, I finally used Venmo last week for the first time.

Jones: [laughs] Congratulations!

Frankel: Right after he leaves the show. [laughs] He always gave me a hard time about that, because he would bring it up in every discussion. But, MasterCard is doing a great job of integrating technologies into technologies like that, and altogether doing a really good job of adding value to their product that differentiates them from Visa.

Another acquisition I was going to mention is one called APT, Applied Predictive Technologies, that they acquired in 2015. That adds analytical capabilities to their products that really differentiated them. That's the key word here, differentiation. They want to differentiate themselves from Visa, and they're doing it through all of these value-adding acquisitions and investing heavily into the newest financial technology.