Mastercard CEO addresses possible recession, tougher fee rules

Mastercard reported strong second-quarter earnings, but acknowledged potential economic and regulatory challenges. 

"We've been tested over the past two years," Michael Miebach, Mastercard's CEO, said during Thursday morning's earnings call. "We feel we're positioned to navigate whatever is going to come." 

Mastercard reported net income of $5.5 billion, up 27% from a year earlier. Earnings per share rose 40% to $2.56. Analysts had projected net income of $5.27 billion and earnings per share of $2.36. U.S. retail spending increased 6% in the second quarter from a year earlier and spending in Europe is also increasing, though risks related to natural gas prices amid Russia's invasion of Ukraine persist, Mastercard said.

Mastercard's earnings beat comes against a backdrop of a 0.9% decline in the U.S. gross domestic product during the second quarter, following a first-quarter decline of 1.6%, meeting the technical definition of a recession. And at nearly the same time, news broke of a potential congressional bill that could reduce Visa and Mastercard's control over the swipe fees that merchants pay to the card brands for credit card payments.

Krisztian Bocsi/Bloomberg

Regarding a potential economic slump, Miebach said the company has diversified, increasing its services in areas unrelated to payment processing, such as security risk, technology consulting, and work on open banking and embedded finance.

Open banking refers to sharing data between banks and third parties such as fintechs, a trend that potentially benefits from Mastercard and Visa's scale with card-issuing banks and merchants. Embedded finance refers to using enrolled payment credentials to enable a larger range of financial products. Mastercard recently added its open banking platform to the card brand's Engage network, which aim to bring in partners that provide merchant services.  

These non-payment services are an expanding source of revenue for Mastercard, creating more flexibility than the company had during the economic downturn in 2008, Miebach said. 

Additionally, many of these services have expanded during the pandemic and helped the card brand buffer the effect of the economic downturn that accompanied the start of the COVID-19 crisis in 2020, according to Miebach.

The pending economic slowdown is also different from the 2008 recession for the broader economy, Miebach said. "There isn't a crisis around unemployment and we have high consumer spending. It's a more benign starting point," he said. The potential recession comes with inflation near a 40-year high, which has impacted earnings for some large retailers.  

"Increasing inflationary pressure has yet to significantly impact overall consumer spending but we will continue to monitor this closely," Miebach said. "We have a well-diversified business model and the demonstrated ability to deliver strong operating margins through up and down cycles.”

Mastercard expects consumer spending to remain strong during the next few months, and it also reports there is more upside for cross-border and travel payments growth, which are already surpassing 2019's volume. The company projects full-year 2022 net revenue growth in the low-20% range, which would be an increase over prior projections in the high teens. It  also projected growth in the high teens for the third quarter.

Mastercard's earnings followed Visa, American Express and Discover, which all reported that inflation and potential recession impacts have not yet shown up in their payment volume. Bank earnings have largely followed the same pattern of reporting strong earnings with some concern about future impacts of economic softness. 

Payments

Senators prepare bill to crack down on credit card swipe fees

Longtime credit card interchange critic Sen. Dick Durbin reportedly plans to introduce a bill this week challenging the control Visa and Mastercard have over credit card swipe fees by expanding competition among merchant card-processing networks.

By Kate Fitzgerald

July 27

Analysts asked Miebach about potential U.S. legislation that would pressure interchange fees. Sen. Richard Durbin, D-Illinois and Sen. Roger Marshall, R-Kansas, will reportedly introduce an interchange bill that would boost competition among credit card networks, and would provide merchants more options in routing card transactions. Mastercard and Visa's stock prices fell following news of the bill.   

"Overall the concept of interchange has served the ecosystem well," Miebach said, adding he has not seen the bill and "we are all speculating on what might happen." Visa, which did not return a request for comment by deadline, and Mastercard have both long contended that interchange fees help pay for fraud prevention and other payment rail benefits. The networks also claim they have recently lowered interchange rates. Merchant trade groups claim interchange rates are increasing, even as technology has improved, which in theory would make payment processing cost less.

 "We have invested a massive amount in safety and security and consumer choice," Miebach said.