MasterCard Inc.'s e-commerce and mobile technology initiatives could help it impress banks whose debit contracts with archrival Visa Inc. are set to expire in the next few years.
The payments company has announced several major technology projects this year, and said Tuesday that these efforts are already helping it land new issuer clients.
MasterCard is well behind Visa in the debit space, and though it posted respectable growth in debit transactions in the first quarter, the rate has slowed. Analysts said that recent customer wins, notably SunTrust Banks Inc., have more than offset some defections, and agreed that MasterCard's technology efforts could give it an edge with issuers.
"These are definitely areas of importance that MasterCard needs to be investing in and innovating," said David Parker, an analyst with Lazard Capital Markets.
MasterCard's chief executive, Robert Selander, said innovation was a factor in SunTrust's January decision to switch its debit portfolio from Visa.
"We think some of the things we brought to them in terms of flexibility and breadth of products," as well as MasterCard's data analytics capabilities, won the Atlanta banking company over, Selander said in an interview Tuesday.
Selander also said that upgrades the company announced this week to its global card network, which include a beefed-up rewards-redemption system and enhanced fraud detection, will set it apart. "I think we have some good tools in our tool bag," he said.
MasterCard said in February that FirstMerit Corp.'s FirstMerit Bank would move its debit portfolio from Visa.
And more issuers may be up for grabs. MasterCard's chief financial officer, Martina Hund-Mejean, said the company is aware of at least one "sizable" card portfolio contract held by a competitor that is coming up for renewal in 2011. To be sure, MasterCard has large card portfolios of its own coming up for renewal, in 2012, 2013 and 2014, she said, but did not specify whether they are debit or credit portfolios.
MasterCard's approach "has generally been sensible," said UBS Securities LLC senior analyst Jason Kupferberg, "which is: go after targeted portfolios, don't go into the market with some kind of irrational pricing strategy simply to pick up market share."
Besides the network upgrades, MasterCard recently rolled out an online shopping portal called MasterCard MarketPlace intended to tailor merchant-funded offers to consumers' transaction history.
Such projects could help MasterCard differentiate itself from Visa and go after new issuers, Parker said.
Parker noted MasterCard has had recent success in the prepaid card market, which could dovetail with its efforts to develop the debit business. For instance, the Treasury Department is expanding a program with Comerica Bank that involves distributing Social Security benefits via MasterCard prepaid debit cards.
MasterCard also has struck prepaid card deals in the last year with Univision Communications Inc., Wal-Mart Stores Inc. and other customers.
Still, building up the debit business is not an easy task, and Visa has the lion's share of the market.
MasterCard said Tuesday that its U.S. debit card purchase volume rose 6.9% year over year, to $84 billion, in the first quarter, versus a 9.9% increase for the fourth quarter of 2009.
In contrast, Visa reported last week that its U.S. debit payments rose 20.9% year over year in the first quarter, to $245 billion.
"MasterCard is disadvantaged relative to Visa with substantially less debit market share in the U.S.," Greg Smith, a managing director with Duncan-Williams Inc., wrote in a research note Tuesday. "With credit card growth in decline in the U.S. and debit growth remaining healthy, we think this difference between MasterCard and Visa will become more apparent over the next few quarters."
MasterCard reported a smaller decline in its U.S. credit purchase volume; it fell 3.1% year over year, to $110 billion, in the first quarter, compared to a 7.28% drop in the fourth quarter.
MasterCard reported net income of $455 million, up 24% from a year earlier. Revenue rose 13%, to $1.31 billion, and per-share earnings of $3.46 easily topped Wall Street estimates of $3.14. Selander said in an earnings conference call Tuesday that the results signal "that the global recovery is continuing."