Mastercard Europe – strong dollar offsets boost from travel volume

Mastercard’s Q3 results showed healthy increases in worldwide revenues, mainly due to continued strong growth in high margin international transactions. Worldwide cross border payment volume was up 29% in constant currencies with very high growth (+73%) in travel related spend offset by smaller increases (+13%) in cross-border eCommerce.

With investors worrying about macro conditions, management reassured that Mastercard is well prepared for the coming storm. Michael Miebach, CEO said: “Consumer spending remains resilient and cross-border travel continues to recover. The macroeconomic and geopolitical environment remains uncertain. Inflationary pressures have remained elevated. Should the market outlook weaken, we are prepared to act quickly to modulate our expenses.”

Local currency weaknesss hit Mastercard’s European business, just as it has with all the global payment companies reporting in dollars. Sachin Mehra, CFO, revealed that every $0.01 change in the $/€ exchange rate hits topline revenue by $55m per quarter.

Currency fluctuations apart, management is very positive on its European operations as it believes Mastercard is outperforming Visa in winning issuing mandates from banks and fintech’s. Sachin Mehra said: “We continue to see good Mastercard performance in Europe. Remember in terms of what you are seeing in our metrics, you’re seeing not only what the underlying economies are doing but also the impact of our share growth which has been taking place in Europe. It’s kind of the amalgamation of all of that which is coming through.”

Total purchase volume on Mastercards in Europe[1] was up 1% to $478bn in Q3 but looks healthier (up 16%) when measured in constant currencies. Whichever measure chosen, Mastercard beat Visa whose European payment volume was down 6% in dollar terms in Q3.

ATV on card purchases was up 8% to $33.61.

Mastercard’s forced withdrawal from the Russian market impacted the total number of purchase transactions, which fell 7% to 14.2bn. This is the second successive quarter of decline. The total number of cards[2] rose 5% on the quarter but remains 1% below Q3 last year.  

In line with the continued shift to digital money, Mastercards are used less frequently for cash withdrawals. Cash volume in Europe fell 24% to $142bn with ATV down 16% to $142.

Intra-EU cross-border is a good indicator of the health of the European travel/tourism market and continued to show strong year on year increases – up 36% y-o-y and 40% up on 2019. However, Mehra expects “some moderation within Europe” in Q4 as comparisons get tougher. 

Mastercard reported strong growth in the UK where it has won a large issuer customer from Visa. Less positive was a $208m provision for litigation with UK merchants relating to allegations of over-charging Interchange. This follows a $27m settlement with a UK merchant in Q3 21 in a similar but unrelated case. The merchant is believed to be Sainsburys, a large supermarket.

Elsewhere, management is bullish on Germany where a portfolio win at Deutsche Bank will shortly come on stream and Mastercard also hopes to benefit from the forthcoming switch from Maestro to Mastercard debit. This is expected to drive additional eCommerce transactions because Maestro cards cannot be used on the Internet.

Despite the meltdown in crypto trading activity, Mastercard continues to build out its Defi ecosystem. In Q3 it announced plans for whitelabeling a crypto asset tracking and custody solution from Paxos Trust Company. This gives Mastercard some option value without needing to make a financial commitment. Whether any of its bank partners had decided against offering crypto services, but will now change their mind because Mastercard is sponsoring a product, is an open question.

Mastercard has also struck a deal with and Young Platform in Italy to use Mastercard Send as an off-ramp for crypto to fiat conversion. Again, this is low risk but gives Mastercard some upside if trading restarts in earnest.

Other product news included:

  • Impressive results from Mastercard’s Digital First solution which provides a set of tools allowing issuers to better manage cardholder accounts. Across the first 200 banks taking part, Mastercard reports 2ppts higher approval rates, 4ppts reduction in fraud and 10% higher average spend per account. Chase in UK,  Citi Banamex and ING in Spain are among the latest European customers.
  • Dynamic Yield, a product recommendation and personalisation engine bought from McDonalds for $325m, has gone live with a German fashion brand with 1400 stores.

[1] excluding Maestro

[2] excluding Maestro

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