Mastercard, Visa Report Profits, Thanks To Debit Cards

Debit cards are currently delivering big business for such giants as Visa and Mastercard, presenting a glaring shift in spending patterns. This is quite evident in the U.S., wherein consumers are not expected to use credit cards for daily purchases, such as groceries.

Global issuer Mastercard said profits climbed 25 percent as higher fees allowed it to recoup lost revenues from flat credit card usage.

Mastercard further disclosed that usage of its credit cards fell by nearly eight percent in the US during the fourth quarter of 2009. It however said that usage of its cards in the rest of the world increased by around nine percent during the same period.

On the other hand, Mastercard said that usage of its debit cards spiked internationally, with global transactions rising to 16.5 percent over the previous year and posted revenues of US$ 2.8 billion.

According to Mastercard, shoppers based in the US had made $2.16 billion of those transactions, which meant an rise of 12.5 percent.

Mastercard officials said that more US consumers are choosing to use debit cards for their day-to-day expenses, while setting aside their credit cards for more expensive, grander purchases.

Despite the recession, US consumers have been comfortable with the plastic card and this has even replaced the use of cash and cheques in cashiers or purchase counters in stores. Mastercard stressed that the use of the debit card gives the consumer more control over their money.

Mastercard's main rival Visa, on the other hand, likewise disclosed big profits also due to rising debit card use. Visa had reported a 33 percent increase in profits for the latest quarter, which surprised analysts.

Visa attributed this increase to the continued shift to electronic payments, which has been seen through the rise of debit card use. According to Visa, debit card transactions grew 17 percent in the last quarter of 2009, compared to the same period in the previous year.

Purchases through its debit system now comprise a majority 54 percent of its total US payment volume, Visa added.

Compared to Mastercard, Visa is a bigger player in debit cards having made big inroads in the market in recent years. But Mastercard, it said, was dead-set in encroaching into Visa's market share.

According Mastercard officials, the company has been more responsive to the needs of customers and adding more value to their offerings despite tougher competition in the market. Mastercard has recently inked deals with Suntrust in the US and Barclaycard in the UK.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.