Profits at Mastercard (NYSE:MA) dropped 9% on an annual basis in the first quarter, beating analysts' expectations.

The payment processing company reported net income of $1.7 billion in the first quarter, or diluted earnings per share (EPS) of $1.68. Total revenue reached $4 billion, up 3% year over year, which also beat expectations.

Mastercard

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Despite supplying credit and debit cards to many financial institutions, Mastercard operates differently from a credit card company.

The company does not make money by issuing cards or extending credit, but rather by assessing fees based on the gross dollar volume of clients that use Mastercard products; by taking fees on transaction switching; and from other payment-related products and services.

Mastercard CEO Ajay Banga said in a statement, "We have built a set of diversified services capabilities to meet our partners' needs in this changing world. Although there will be twists in the road, we have seen early signs of spending levels stabilizing and are confident that we will emerge from this even stronger."

The company made gains in several of its key revenue areas, such as an 8% increase in gross dollar volume, a 13% increase in switched transactions and a 26% increase in other revenues, which consist of data analytics and consulting fees, cyber and intelligence fees, and loyalty and reward card solution fees, among other sources.

The gains were offset, however, by a 1% decrease in cross-border volume and a 24% increase in rebates and incentives for customers that hit certain volume targets.

Total operating expenses at the company also climbed 7% year over year, as a result of acquisitions and investment into strategic initiatives.