MasterCard has reported a rise in profits over the last quarter of 38 percent. Though Visa is still the number one frontrunner in credit card use, their profits show a significantly smaller increase than MasterCard.
MasterCard is reporting that use of their credit cards has gone up in the most recent quarter. Mastercard profits soared this quarter, earning the company 38 percent more than usual. This was especially present in the company’s debit card use, which rose 23 percent alone. The most significant thing about this raise however is how MasterCard’s profits this quarter compare to its major rival, visa, which is the leading industry card. Visa only reporting an 8 percent increase in debit card use this quarter, a significant difference from MasterCard’s aforementioned 23 percent.
The reason for this sharp increase for MasterCard may be in part due to new federal regulations on debit card transactions that went into place on October first. The new regulations make it harder for banks to make money from customers who use their debit cards by limiting the amount that the banks can charge to merchants. Before the regulations took place banks could charge as much as forty four cents for debit card use and now the limit has been dropped to around twenty four cents. The new legislation also lets the merchants choose what agency will process the charges, which is something that has been handled by the banks under previous legislation.
Experts believe that the reason the new regulations gave MasterCard such a boost is because they allowed MasterCard to swipe customers from Visa. MasterCard CEO Ajay Banga expects the unflux of new customers to stick, and even intends to continue leeching customers from Visa. In fact, under Banga’s instruction MasterCard has new plans and strategies for enticing banks to convert their debit cards from Visa to MasterCard.
MasterCard’s increase in profits isn’t just confined to the past quarter. MasterCard’s profits have soared by twenty seven percent since last year. But experts believe that MasterCard shouldn’t be counting their chickens before they’ve hatched. Despite record numbers of debit card usage across the US, the majority of financial transactions worldwide are still handled in cash and many former debit card users are actually making a switch from cards to cash.
CEO Banga has stated that he hopes to convert those cash users into or back into debit card users. MasterCard is doing so by employing a new tactic of partnering with local government agencies to help distribute benefits. Unemployment insurance and child support benefits are already being branded with the MasterCard label in some states, and MasterCard has even already been successful in integrated certain new programs abroad.
But many officials believe that despite the fact that it seems as though spending is on the rise and therefore the economy is healing, this increase in revenue for MasterCard may reflect a wider economic downturn. This new use of debit cards it seems may be due to a lack of cash, where individuals who are struggling are using their cards to make the best use of their money by taking advantage of their rewards programs. But when credit cards are one of the worst ways to build a credit score and major purchases like mortgages and auto loans help credit scores, it may be best to forego the card, no matter how tempting, and deal with cash and other credit opportunities.
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