Card company results show waning credit card use

NEW YORK -- Shoppers still reach for plastic at the checkout, but the card they grab most often these days is a debit card, not a credit card.

That was spelled out Thursday in MasterCard Inc.'s fourth-quarter results. The payment processor posted a 23-percent profit leap, but its shares were beaten down as the numbers revealed further evidence of the fading use of credit cards, whether by choice or necessity.

"People have been utilizing credit, obviously, to a much less extent," MasterCard Chief Financial Officer Martina Hund-Mejean said in an interview.

Meanwhile, rival Visa Inc.'s results not only showed a huge profit gain, but also its dominance of debit, which consumers use more often to buy necessities like food and gasoline. That shielded the San Francisco company's stock from the session's widespread declines.

Both companies rely on fees they get from banks when consumers use their cards.

But MasterCard's continued reliance on credit sent its stock down $25.47, or 10.3 percent, to $222.11. Cutbacks in the amount of credit available to consumers were also evident in the 1 percent decline in the number of cards bearing the MasterCard logo.

While MasterCard's worldwide purchase volume rose 6 percent from the year-ago period, to $510 billion, it fell in the U.S.

Credit card use dropped 13 percent in the U.S., while rising about 6 percent in the rest of the world.

Use of MasterCard's debit cards spiked across the globe, with a 10.5 percent gain in the U.S. and a nearly 20 percent jump worldwide. But total MasterCard debit volume was $225 billion, or about half its credit volume of $448 billion.

Visa late Wednesday posted 15 percent growth in U.S. debit use and 19 percent growth worldwide, to $702 billion. That compares with $530 billion in worldwide credit use. Visa shares slipped just 47 cents to close Thursday at $83.05, as the overall market dropped 2.6 percent.

For the final three months of 2009, MasterCard earned $294 million, or $2.24 per share, compared with $239.4 million, or $1.83 per share, in the prior-year period.

Adjusted for an after-tax severance charge, profit rose to $2.43 per share.

Revenue rose to $1.3 billion, from $1.22 billion a year ago.

Analysts polled by Thomson Reuters, on average, expected profit of $2.46 per share, on revenue of $1.3 billion. Analyst estimates typically do not include one-time gains or charges.

The big revenue gains reflect a 5 percent increase in the fees MasterCard charges for processing payments.

Revenue also rose on a 7 percent jump in the number of transactions the company processed, which rose to 5.9 billion.

Still, that is a comparison to last year, when the economy was in free fall.

Growing its share of the debit card market is one of the prime focuses for MasterCard, said CFO Hund-Mejean, noting that the dollar value of MasterCard credit and debit transactions have been converging for some time.

"You're seeing those numbers coming closer and closer together," Hund-Mejean said. "Eventually those two lines with cross, quite naturally."

She couldn't say when the company expects its debit volume to pass credit, but she pointed to a recent deal with SunTrust Banks Inc. to switch its debit cards to MasterCard as a reflection of the company's strategy.

One problem is that such deals can cost a bundle.

MasterCard, which is based in Purchase, has not disclosed the terms of the SunTrust deal. But analysts keyed in on comments from the company regarding the rebates and incentives offered to banks to persuade them to switch the logos on the cards they offer their customers.

"The only way to convince a bank to switch from Visa to MasterCard is to write a big fat check," said Red Gillen, an analyst with the financial services consultant Celent. "We think that's what happened with SunTrust."

These givebacks may hinder MasterCard performance in the future. Janney Capital Markets analyst Thomas McCrohan said the company's 2010 guidance for revenue growth to exceed 2009's 3.9 percent gain was weak, and said the 30 percent spike in rebates and incentives in the fourth quarter was cause for concern, given that the company indicated that figure may continue to rise. He lowered his profit estimate for the year and kept a "neutral" rating on the stock.

MasterCard also posted a 25 percent spike in its costs for advertising and marketing. Hund-Mejean said that increase was mostly spending in international markets, particularly in countries in Asia and Latin America the company thinks have high growth prospects.

For all of 2009, MasterCard posted a profit of $1.46 billion, or $11.16 per share, versus a loss of $253.9 million, or $1.94 per share, for 2008. Revenue rose 2 percent to $5.1 billion, from $5 billion in 2008.