MasterCard said Thursday its fourth-quarter profit jumped 23 percent as the company raised its fees to offset fading credit card use in the U.S.
Yet MasterCard's performance paled in comparison with its rival, Visa, which is better positioned to handle a huge shift in consumer behavior as shoppers put away credit cards to save money.
Shares of MasterCard tumbled 9 percent.
Both companies rely on fees they get from banks when consumers use their cards.
The difference is that Visa has a much bigger market share of debit cards, which consumers continue to use daily to buy necessities like food and gasoline.
MasterCard has relied more on fees from credit card spending in a time when people are fearful of job losses. More people are keeping those cards tucked away and use them only when they have to.
And credit extended to consumers by banks has seized up. That was 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 nearly 8 percent in the U.S. while rising about 9 percent in the rest of the world.
Use of MasterCard's debit cards spiked worldwide, with a 10 percent gain in the U.S. and nearly 16 percent jump worldwide.
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 its fees from MasterCard Inc.
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.
MasterCard is shifting strategy because of changes that the recession has brought about and getting deeper into the debit card market is a prime focuses for the company, Chief Financial Officer Martina Hund-Mejean said in an interview. "People have been utilizing credit, obviously, to a much less extent," she said.
The number of people using debit cards has risen rapidly compared with those who use credit cards regularly.
"You're seeing those numbers coming closer and closer together," Hund-Mejean said. "Eventually those two lines with cross, quite naturally."
But MasterCard is going to have to pry banks away from Visa, and that is going to cost a lot of money.
During a conference call Thursday, analysts were keen to know about the rebates and incentives MasterCard used recently to convince SunTrust Banks Inc. to switch its debit cards to MasterCard.
"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."
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.
MasterCard shares fell $22.35 to $225.23, as Visa gained 2 percent to $85.05.
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