MasterCard 2010 Annual Report Download - page 32

Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Wall Street Reform and Consumer
Protection Act”), which requires the Board of Governors of the United States Federal Reserve System to
issue regulations prohibiting arrangements under which a debit card can be processed only by one
network (or only by a group of affiliated networks). The Wall Street Reform and Consumer Protection
Act also prohibits any restrictions on a merchant’s ability to route a transaction over any one of the
networks that could process the transaction. These events have resulted in challenges, as well as
potential opportunities to compete for business in this area.
•Transaction Processors. We 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.
•New Entrants and Alternative Payment Systems. We also compete against relatively new entrants and
alternative payment providers, such as PayPal®(a business segment of eBay), which have developed
payment systems in e-Commerce and across mobile devices. While PayPal is an established and
important player in Internet payments, this is an increasingly competitive area, as evidenced by the
proliferation of new online competitors. 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. The payment card industry is
also facing changes in services and technology related to mobile payments and emerging competition
from mobile operators and handset manufacturers. Micro-payments on social networks such as
Facebook®are relatively small today but have the potential to grow rapidly, representing the potential
for competition from a new payment form.
Financial Institution Customers.
•Pricing. We face increasingly intense competitive pressure on the prices we charge our customers. We
seek to enter into business agreements with customers through which we offer incentives and other
support to issue and promote our cards. 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. 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 Part I, Item 1A.
•Banking Industry Consolidation. The banking industry has undergone substantial accelerated
consolidation over the last several years, and we expect some consolidation to continue in the future.
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—Additional consolidation or
other changes in or affecting the banking industry could result in a loss of business for MasterCard and
create pressure on the fees we charge our customers, resulting in lower prices and/or more favorable
terms for our customers, which may materially and adversely affect our revenue and profitability” in
Part I, Item 1A.
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