September 16, 2010
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News: MasterCard's Profits Soar
According to a recent statement from the giant credit card network MasterCard, new legislation has done little to negatively affect the company's profits. While nearly every lender has been negatively affected by the Credit Card Accountability Responsibility and Disclosure Act 2009 (CARD), MasterCard's profits continue to soar. According to the Associated Press, MasterCard expects that the company's income from debit and credit card transactions will increase by a whopping 20 percent during the year 2010; a year that the U.S. has had to deal with the worst recession since the Great Depression. It is also a year that the credit cardholders have lost homes, jobs, and credit. Billions of dollars have been spent on preventing some of the most influential and powerful contributors to the job market and the U.S. economy.
How is it possible that while the U.S. is struggling to employ its citizens, provide adequate credit to cardholders, and save thousands of families from losing their homes, MasterCard continues to bath in profits? One reason is that unlike the credit card companies that lend money to consumers, of which many have defaulted, MasterCard does not extend credit. Therefore, the company does not have the same risks that are associated with lending. MasterCard generates earnings from each of its branded debit and credit card transaction that takes place. Transaction fees which are called interchange fees are not regulated by the new CARD Act. Imagine that!
Although the CARD Act does not address interchange fees, there is new legislation that does regulate debit card transaction fees, however, does not address credit card transaction fees. The Dodd-Frank Wall Street Reform and Consumer Protection Act was recently passed which regulates debit card interchange fees; however, debit cards account for only 15 percent of MasterCard's business. Therefore, the company doesn't expect the new law to have a significant impact on earnings. It all places the card giant in a superior bargaining position for future acquisitions.