MasterCard 1st-qtr profit spikes 24 percent as shoppers again reach for the plastic

MasterCard 1Q spikes as shoppers reach for plastic

PURCHASE, N.Y. — MasterCard Inc. on Tuesday said its first-quarter profit jumped 24 percent with more shoppers feeling comfortable enough about the economy and their jobs to reach for the plastic again, and as debit card use soared.

The payment processor earned $455 million, or $3.46 per share in the first three months of the year, compared with $367 million, or $2.81 per share, in the year-ago period.

Revenue climbed 13 percent to $1.31 billion, from $1.16 billion last year. MasterCard said about 5 percent of that gain came from raising the prices it charges to merchants for processing transactions.

The results easily topped the $3.14 per share and $1.27 billion revenue expected, on average, by analysts polled by Thomson Reuters.

The healthier profits reflect 5 percent growth in the number of transactions processed, and an 11 percent increase in MasterCard’s international volume.

The use of credit cards in the U.S. remained sluggish, dropping 3 percent. That was a far smaller decline than the double-digit drops seen for most of 2009, and Chief Financial Officer Martina Hund-Mejean said in an interview that credit use actually edged slightly higher in March and April. “People are starting to come back and use credit a little bit more,” she said in an interview.

But debit card used surged everywhere. MasterCard said total debit volume using cards that draw money from bank accounts rose 18 percent worldwide, including a 7 percent jump in the U.S. and 33 percent spike abroad.

That means that even as the economy starts to recover and consumer confidence is growing, U.S. shoppers are still hesitant to take on more debt.

That has marked a tremendous change for companies like MasterCard and rival Visa Inc.

In the U.S., MasterCard debit use pulled even with credit use in the first quarter. A year ago, credit topped debit use by more than 16 percent.

Hund-Mejean said debit use is particularly high among people under 30 years old. “They use it as a budgetary tool in order to control their spending,” she said.

MasterCard lags rival Visa by a wide margin in debit card market share. Last week, Visa posted $675 billion in worldwide debit volume for the first quarter, and $322 billion in the U.S.

That compares with MasterCard’s $225 billion debit volume worldwide, and $118 billion in the U.S.

Hund-Mejean said MasterCard continues to compete for debit business. Late last year, the company signed on regional bank SunTrust Inc. to convert its debit cards from Visa, and it recently reached deals with an Ohio bank and with GMAC’s Ally Bank.

There is one “significant contract” held by its rival that expires next year, which MasterCard will pursue, the CFO said.

The company is also selling prepaid cards aggressively, including branded prepaid cards to be issued to Social Security recipients. MasterCard has deals to replace paper checks with prepaid cards for other government retiree benefits as well. About 1 million cards have been issued to Social Security recipients so far, Hund-Mejean said.

Yet the debit card game is dominated by Visa.

Janney Capital Markets analyst Thomas C. McCrohan said he views that as a “significant competitive disadvantage” to MasterCard.

“Consumers continue to shift more of their spending onto debit cards, and we do not believe this behavioral shift will reverse course once the economy recovers,” McCrohan said. He kept a “Neutral” rating on MasterCard’s stock.

Globally, MasterCard’s credit card still exceeds debit: with total dollar volume of $289 billion in credit use, compared with $107 billion in debit.

After jumping about 3 percent when trading opened, MasterCard shares lost momentum as part of a broad sell-off on Wall Street. I

Shares rose 51 cents to close at $251.25.