MasterCard 2008 Annual Report Download - page 43

• Our customers may default on their settlement obligations. See Note 21 (Settlement and Travelers
Cheque Risk Management) to the consolidated financial statements included in Item 8 of this Report for
further discussion of our settlement exposure.
• Our business and prospects, as well as our revenue and profitability, could be materially and adversely
affected by consolidation of our financial institution customers. See “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 impact our
revenue and profitability” in this Item 1A of this Report.
Any of these developments could have a material adverse impact on prospects, growth, revenue,
profitability and overall business.
We face increasingly intense competitive pressure on the prices we charge our customers, which may
materially and adversely affect our revenue and profitability.
We generate revenue from the fees that we charge our customers for providing transaction processing and
other payment-related services and from assessments on the dollar volume of activity on cards carrying our
brands. In order to increase transaction volumes, enter new markets and expand our card base, we seek to enter
into business agreements with customers through which we offer incentives, pricing discounts and other support
to customers that issue and promote our cards. In order to stay competitive, we may have to increase the amount
of these incentives and pricing discounts. Over the past several years, we have experienced continued pricing
pressure. The demand from our customers for better pricing arrangements and greater rebates and incentives
moderates our growth. We may not be able to continue our expansion strategy to process additional transaction
volumes or to provide additional services to our customers at levels sufficient to compensate for such lower fees
or increased costs in the future, which could materially and adversely affect our revenue and profitability. In
addition, increased pressure on prices enhances the importance of cost containment and productivity initiatives in
areas other than those relating to customer incentives. We may not succeed in these efforts.
Our strategy is to grow our business by, among other things, focusing on our customers and entering into
customized business agreements with customers around the globe. In the future, we may not be able to enter into
such agreements on terms that we consider favorable, and we may be required to modify existing agreements in
order to maintain relationships and to compete with others in the industry. Some of our competitors are larger
and have greater financial resources than we do and accordingly, may be able to charge lower prices to our
customers. In addition, to the extent that we offer discounts or incentives under such agreements, we will need to
further increase transaction volumes or the amount of services provided thereunder in order to benefit
incrementally from such agreements and to increase revenue and profit, and we may not be successful in doing
so. Furthermore, a number of customers from which we earn substantial revenue are principally aligned with one
of our competitors. A significant loss of revenue or transaction volumes from these customers could have a
material adverse impact on our business.
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.
Over the last several years, the banking industry has undergone rapid consolidation, and, based on current
economic conditions, we have seen this trend accelerate in 2008. We expect this trend to continue in the future.
Consolidation represents a competitive threat to us because our strategy contemplates entering into business
agreements with our largest customers in exchange for significant business commitments. 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 the
substantial loss of business for MasterCard, which could have a material adverse impact on our business and
prospects. In addition, one or more of our customers could seek to merge with, or acquire, one of our
competitors, and any such transaction could also have a material adverse impact on our business and prospects.
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