MasterCard 2011 Annual Report Download - page 26

signature-based debit transactions to PIN-based debit transactions because we generally earn less
revenue from the latter types of transactions. This tendency may be accelerated as a result of the
Board of Governors of the Federal Reserve System (the “Federal Reserve”) implementing
regulations associated with the Wall Street Reform and Consumer Protection Act (as defined and
described below under “Government Regulation”). In addition, PIN-based debit 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 Part I, Item 1A of this
Report.
OPrivate-Label. Private-label cards, which can generally be used to make purchases solely at the
sponsoring retail store, gasoline retailer or other types of merchants, also serve as another form of
competition.
•End-to-End Payment Networks. Our competitors include operators of proprietary end-to-end payment
networks that have direct acquiring relationships with merchants and direct issuing relationships with
cardholders, such as American Express and Discover. These competitors have certain advantages that
we do not enjoy. Among other things, these competitors do not require formal interchange fees to
balance payment system costs among issuers and acquirers, because they typically have direct
relationships with both merchants and cardholders. Interchange fees, which are a characteristic of four-
party payments systems such as ours, are subject to increased regulatory and legislative scrutiny
worldwide. See “Risk Factors-Legal and Regulatory Risks-Interchange fees and related practices have
been receiving significant and increasingly intense legal, regulatory and legislative scrutiny worldwide,
and the resulting decisions, regulations and legislation may have a material adverse impact on our
revenue, our prospects for future growth and our overall business, financial condition and results of
operations” in Part I, Item 1A of this Report. To date, operators of end-to-end payment networks have
generally avoided the same regulatory and legislative scrutiny and litigation challenges we face because
they do not utilize formal interchange fees. Accordingly, these operators may enjoy a competitive
advantage over four-party payments systems.
•Competition for Customer Business. We compete intensely with other card networks for customer
business. Globally, financial institutions typically issue both MasterCard and Visa-branded payment
cards, and we compete with Visa for business on the basis of individual card portfolios or programs.
Some of our customers also do business with American Express or Discover in the United States, and a
number of our large customers now issue American Express and/or Discover-branded cards. We also
compete for new business partners with whom we seek to work, such as merchants, government
agencies and telecommunication companies. See “Risk Factors-Business Risks-Our revenues, operating
results, prospects for future growth and overall business may suffer because of substantial and
increasingly intense competition worldwide in the global payments industry” in Part I, Item 1A of this
Report. Our ability to compete in the global payments industry for customer business can be affected by
the outcome of litigation, regulatory proceedings and legislative activity. For example, in October 2011,
the Federal Reserve implemented regulations, pursuant to the enactment into law of the Wall Street
Reform and Consumer Protection Act, prohibiting arrangements under which a debit card or prepaid
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 is enabled on a debit card or prepaid card. 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.
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