MasterCard 2010 Annual Report Download - page 19

the transmission of authorization requests and results among issuers, acquirers and other transaction
processors or networks. For online transactions (other than transactions in Europe), the Single
Message System (which sends authorization and clearing messages together) switches financial
messages and provides transaction and settlement reporting. Our standards, which may vary across
regions, establish the circumstances under which merchants and acquirers must seek authorization
of transactions.
OClearing. Clearing refers to the exchange of financial transaction information between issuers and
acquirers after a transaction has been completed. MasterCard clears transactions among customers
through our central and regional processing systems. Offline transactions using our branded cards
are generally cleared via centralized processing through the Global Clearing Management System
and the related information is typically routed among customers via the MasterCard Worldwide
Network. For online transactions, the Single Message System performs clearing between customers
and other debit transaction processing networks. MasterCard clearing services can be managed with
minimal system development, which has enabled us to accelerate our customers’ ability to develop
customized programs and services.
OSettlement. Once transactions have been authorized and cleared, MasterCard helps to settle the
transactions by facilitating the exchange of funds between parties. Once clearing is completed, a
daily reconciliation is provided to each customer involved in settlement, detailing the net amounts
by clearing cycle and a final settlement position. The actual exchange of funds takes place between
a clearing bank, designated by the customer and approved by MasterCard, and a settlement bank
chosen by MasterCard. Customer settlement occurs in U.S. dollars or in a limited number of other
currencies in accordance with our established rules.
•Cross-Border and Domestic Processing. The MasterCard Worldwide Network provides our customers
with a flexible structure that enables them to support processing across regions and for domestic
markets. The network processes transactions throughout the world on our branded cards where the
merchant country and cardholder country are different (cross-border transactions). MasterCard
processes transactions denominated in more than 150 currencies through our global system, providing
cardholders with the ability to utilize, and merchants to accept, MasterCard cards across multiple
country borders. For example, we may process a transaction in a merchant’s local currency; however the
charge for the transaction would appear on the cardholder’s statement in the cardholder’s home
currency. MasterCard also provides domestic (or intra-country) transaction processing services to
customers in every region of the world, which allow customers to facilitate payment transactions
between cardholders and merchants throughout a particular country. We process most of the cross-
border transactions using MasterCard, Maestro and Cirrus-branded cards and, among our largest
markets, process the majority of MasterCard-branded domestic transactions in the United States, United
Kingdom, Canada and Brazil. Outside of these and a select number of other countries, however, most
intra-country (as opposed to cross-border) transaction activity conducted with our branded payment
cards is authorized, cleared and/or settled by our customers or other processors without the involvement
of the MasterCard Worldwide Network. We continue to invest in our network and build relationships to
expand opportunities for domestic transaction processing. In particular, the Single European Payment
Area (“SEPA”) initiative creates an open and competitive market in many European countries that were
previously mandated to process domestic debit transactions with domestic processors. As a result, in
addition to cross-border transactions, MasterCard now processes some domestic debit card services in
nearly every SEPA country.
•Extended Processing Capabilities. In addition to transaction switching, MasterCard continually
evaluates and invests in ways to strategically extend our processing capabilities in the payment value
chain by seeking to provide our customers with an expanded suite of payment processing solutions that
meet the unique processing needs of their markets. Examples include:
OMasterCard Integrated Processing Solutions™ (IPS). MasterCard Integrated Processing Solutions
(“IPS”) is a debit and prepaid issuer processing platform designed to provide medium to large global
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