MasterCard 2008 Annual Report Download - page 31

We face increasingly intense competitive pressure on the prices we charge our customers. In order to stay
competitive, we may have to increase the amount of rebates and incentives we provide to our customers and
merchants as we have in the last several years. We seek to enter into business agreements with customers through
which we offer incentives and other support to issue and promote our cards. However, our customers can
terminate their business agreements with us in a variety of circumstances. See “Risk Factors—Business Risks—
We face increasingly intense competitive pressure on the prices we charge our customers, which may materially
and adversely affect our revenue and profitability” in Item 1A of this Report.
During the last several years, the banking industry has undergone rapid consolidation, and, based on current
economic conditions and weakening of customers’ financial health, we have seen this trend accelerate in 2008.
We expect this trend to continue in the future. Consolidation represents a competitive threat for MasterCard
because our business and pricing strategy is intended to enable MasterCard to achieve targeted financial
performance by providing incentives to customers for incremental business. Furthermore, it contemplates
entering into business agreements with our largest customers in exchange for significant business commitments
to MasterCard. Recent consolidations have included customers with a substantial MasterCard portfolio being
acquired by institutions with a strong relationship with a competitor. Significant ongoing consolidation in the
banking industry may result in a substantial loss of business for MasterCard. The continued consolidation in the
banking industry, whether as a result of an acquisition of a substantial MasterCard portfolio by an institution with
a strong relationship with a competitor or the combination of two institutions with which MasterCard has a
strong relationship, would also produce a smaller number of large customers, which generally have a greater
ability to negotiate pricing discounts with MasterCard. Consolidations could prompt our customers to renegotiate
our business agreements to obtain more favorable terms. This pressure on the prices we charge our customers
could materially and adversely affect our revenue and profitability. See “Risk Factors—Business Risks—
Consolidation or other changes affecting the banking industry could result in a loss of business for MasterCard
and may result in lower prices and/or more favorable terms for our customers, which may materially and
adversely affect our revenue and profitability” in Item 1A of this Report.
We face competition with respect to particular segments of the payment card industry. In the United States,
for example, some of our competitors process a greater number of online, PIN-based debit transactions at the
point of sale than we do. In addition, our business and revenues could be impacted adversely by the tendency
among U.S. consumers and merchants to migrate from offline, signature-based debit transactions to online,
PIN-based debit transactions because we generally earn less revenue from the latter types of transactions. In
addition, online, PIN-based transactions are more likely to be processed by other domestic ATM/debit
point-of-sale networks rather than by us. See “Risk Factors—Business Risks—If we are unable to grow our debit
business, particularly in the United States, we may fail to maintain and increase our revenue growth” in Item 1A
of this Report.
We also face competition from transaction processors throughout the world, such as First Data Corporation
and Total System Services, Inc., some of which are seeking to enhance their networks that link issuers directly
with point-of-sale devices for payment card transaction authorization and processing services. Certain of these
transaction processors could potentially displace MasterCard as the provider of these payment processing
services.
We also compete against relatively new entrants, such as PayPal (a business segment of eBay), which have
developed alternative payment systems and payments in electronic commerce and across mobile devices. Among
other services, these competitors provide Internet payment services that can be used to buy and sell goods online,
and services that support payments to and from deposit accounts or proprietary accounts for Internet, mobile
commerce and other applications. A number of these new entrants rely principally on the Internet and potential
wireless communication networks to support their services, and may enjoy lower costs than we do. In mobile
commerce, we also face competition from established network operators. Whereas the MasterCard approach to
mobile commerce centers on the use of the consumer’s payment account as established by their card issuer,
network operators may apply mobile consumer payments directly to the customer’s monthly bill or prepaid
mobile account.
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