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Developing Markets Give MasterCard Upside Potential

BOSTON - TREFIS.com | MasterCard has been able to navigate the economic uncertainty that has gripped most U.S. companies through the last five years. The company’s stock has been rising steadily on positive earnings growth through the financial crisis. Revenues have grown at a compounded annual growth rate (CAGR) of 14% since 2007.  

 

Contribution shift

An increased focus on markets outside of the U.S. is one of the main reasons that MasterCard has been able to maintain this growth rate. In 2007, half of the company’s gross dollar volume (GDV) came from the U.S. while Asia Pacific and Latin America contributed just 13% and 7%, respectively. In 2012, the contribution from Asia grew to nearly 30% while Latin America accounted for 10%. While the U.S. is still the single biggest market for MasterCard, its contribution to the company’s GDV has declined to just around 30%.

 

Developing markets drive market growth 

Emerging economies like India, China and Brazil will drive market growth in Asia and Latin America in the coming years, but it is up to MasterCard to capitalize on this growth. Increased penetration in these markets could provide significant upside for the company’s stock.  Personal consumption expenditures (PCE) have been growing at an average growth rate of 10% in developing markets of India, China, Mexico, Brazil, Russia, Indonesia, South Africa and the UAE.

 

Paper vs Electronic

In contrast with the U.S. where electronic payment solutions account for 60% of the expenditures, paper-based transactions dominate these emerging markets accounting for 60% of personal spendings. India and China are two of the fastest growing markets with $1 trillion and $1.3 trillion in PCE, respectively.

 

Chinese and Indian Payment Market

Electronic payment penetration is quite high in China with paperless transactions accounting for two-thirds of PCE in the country. This is due to rapid expansion of China UnionPay (CUP), which is backed by the Chinese government. In contrast, India has high potential for growth in the coming years. Cash and checks still account for 92% of personal consumption transactions in the country. The country’s gross national per capita income has been growing at a rate of 15% for the last three years.

 

Restricting Regulations

Regulations require that all merchants and ATMs across the country accept UnionPay cards and all cards issued in China work with UnionPay. These regulations restricted both payment giants Visa (NYSE:V) and MasterCard from expanding in an economy they entered more than 20 years ago.

 

Latin America

Brazil is the fourth largest payment card market in the world and the biggest in Latin America. Credit, debit and private-label store cards in the country have grown from 400 million in 2010 to 687 million in 2011 and around 750 million in 2012. Visa and MasterCard are dominant players in the market with a majority of the cards in the country carrying their logos. Electronic payment methods are rapidly gaining acceptance in the country. Brazil is the 12th largest market for online payments with payment volume in excess of $17.4 billion.

 

Excerpts were taken from the orginal article by trefis.com, 'Developing Markets Give MasterCard Upside Potential', September 18th, 2013

 

 

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