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This Could Be a Game Changer for MasterCard's Earnings

By Brian Withers and Matthew Frankel, CFP® - Mar 12, 2021 at 7:50AM

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A not-so-well-known segment could be big business for the card payment processor after the pandemic.

MasterCard (MA 1.12%) has taken it on the chin lately with consumers pulling back on spending during the pandemic. One of the company's revenue sources that's taken a disproportional hit has to do with fees related to buyers using cards to buy goods and services outside their home country. On a Motley Fool Live episode recorded on March 3, Fool contributor Matt Frankel discusses how this has impacted this payment processor's results and how these fees could be a game changer for the company if international travel picks up after the vaccine rollout. 

Matt Frankel: Yeah, I'll finish it off with MasterCard, then I see a question that we could both hit really quick that I think will be really helpful. MasterCard, it's kind of a mixed bag. MasterCard's sales volume is doing pretty well. Their gross dollar volume, which is the money flowing through their payment network, was up 1% year over year in the fourth quarter. That's pretty impressive given that there's a pandemic going on. US growth was even stronger, that was 4% year over year. Here's a cool statistic. There are now 2.75 billion MasterCards in existence, and that's the No. 2. Visa's No. 1; that's up 6% year over year.

Where they really got hit by the pandemic is in the cross-border payments division. If you've ever noticed your credit card might charge a foreign transaction fee, say, if you go overseas and use it or something to that effect, cross-border fee revenue was down 40% year over year. MasterCard's revenue declined 7% year over year in total, and then 40% declining cross-border payments was really what did it.

International travel just isn't a thing right now. They said card-not-present transactions were actually up year over year in cross-border, meaning if you bought something, say, online in France, and had it shipped to you. Those kind of transactions were doing just fine, but it's the card-present transactions that were off more than 60% year over year. I'm surprised it was only off by 60% being how little international travel is going on right now. So MasterCard's quarter was a mixed bag.

They recently announced the payment activity they're seeing earlier in the year. They reported the U.S. retail sales were up over 9% in January, year over year, which is pretty impressive. Switch transaction volume, meaning their payment volumes is still up year over year, through February. Cross-border volumes are still way down, but only about 25% down, not the 40%. So that's starting to slowly come back a little bit more.

That's really the "what to watch" is that cross-border volume. Because if international travel makes a serious comeback in 2021, that would be a game changer for MasterCard's earnings. If the economy strengthens to where it was before the pandemic and cross-border comes back, it's going to be a big driver of growth.

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