Friday, September 02, 2005

MasterCard Float May Share The Risks (NY Times)

By Julie Creswell and Eric Dash in New York - September 2, 2005 - New York Times

MasterCard, the world's second-largest credit-card brand, has announced plans to pursue a float that could value the company at more than $US10 billion ($13 billion).

By going public, MasterCard can raise capital to mount a stronger charge against Visa International, its much larger rival. But the move could also be an effort to try to insulate the banks that issue its debit and credit cards as law suits against MasterCard mount, analysts said.
MasterCard and Visa are payment associations controlled by thousands of members ranging from small credit unions to global banks. They are marketing machines and policy makers that set the fees and rules merchants must follow, but they do not directly issue cards to consumers; that task is left to their member banks.

MasterCard said it planned to sell 49 per cent of the company to the public, which will hold 83 per cent of the voting rights in the company. The 1400 financial institutions that are members of the card association will retain 41 per cent of the public company. They will also get an undisclosed portion of proceeds raised in the public offering. The remaining 10 per cent stake in MasterCard will be controlled by a newly formed charitable foundation.

The credit card landscape has changed rapidly in recent years. Today, Visa controls nearly 60 per cent of the dollar amount charged on credit and debit cards around the world. MasterCard controls around 27 per cent, according to The Nilson Report, a newsletter that tracks the industry.
MasterCard said $US650 million from the public offering would be used to finance an increase in capital spending.

David Robertson, publisher of The Nilson Report, said: "The money will be used, in part, to better compete for co-brand deals with airlines and large merchants worldwide."

But a much bigger factor is law suits on various fronts. Last year, for example, a court ruled that banks, previously restricted to issuing either MasterCard or Visa cards, could offer any company's cards.

Additionally, MasterCard, Visa and some banks have been named in numerous anti-trust suits filed by US retailers, who contend that the payment associations and their member banks illegally fix the transaction fees charged to merchants every time a card is swiped. Last year, those charges, known as interchange fees, totalled about $US25 billion.