MasterCard 2011 Annual Report Download - page 43

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• Our customers may default on their settlement obligations, including due to an increased probability of
sovereign defaults in several European countries causing a liquidity crisis for our customers. See Note
21 (Settlement and Other Risk Management) to the consolidated financial statements included in Part II,
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 customers. See “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 revenues and profitability” in Part I, Item 1A
(Risk Factors) of this Report for further discussion.
Any of these developments could have a material adverse impact on our prospects, growth, revenue,
profitability and overall business.
A decline in cross-border travel could adversely affect our revenues and profitability, as a significant
portion of our revenue is generated from cross-border transactions.
We process substantially all cross-border transactions using MasterCard, Maestro and Cirrus-branded cards
and generate a significant amount of revenue from cross-border volume fees and transaction processing fees.
Revenue from processing cross-border and currency conversion transactions for our customers fluctuates with
cross-border travel and our customers’ need for transactions to be converted into their base currency. Cross-
border travel may be adversely affected by world geopolitical, economic, weather and other conditions. These
include the threat of terrorism and outbreaks of flu, viruses and other diseases. Any such decline in cross-border
travel could adversely affect our revenues and profitability.
General economic and global political conditions may adversely affect trends in consumer spending,
which may materially and adversely impact our revenue and profitability.
The global payments industry depends heavily upon the overall level of consumer, business and government
spending. General economic conditions (such as unemployment, housing and changes in interest rates) and other
political conditions (such as devaluation of currencies and government restrictions on consumer spending) in key
countries in which we operate may adversely affect our financial performance by reducing the number or average
purchase amount of transactions involving payment cards carrying our brands. Also, as we are principally based
in the United States, a negative perception of the United States could impact the perception of our company,
which could adversely affect our business prospects and growth.
As a guarantor of certain third-party obligations, including those of principal customers and affiliate
debit licensees, we are exposed to risk of loss or illiquidity.
We may incur liability in connection with transaction settlements if an issuer or acquirer fails to fund its
daily settlement obligations due to technical problems, liquidity shortfalls, insolvency or other reasons. If a
principal customer or affiliate debit licensee of MasterCard is unable to fulfill its settlement obligations to other
customers, we may bear the loss even if we do not process the transaction. In addition, although we are not
obligated to do so, we may elect to keep merchants whole if an acquirer defaults on its merchant payment
obligations. Our MasterCard, Maestro and Cirrus-branded gross legal settlement exposure, which is primarily
estimated using the average daily volume during the quarter multiplied by the estimated number of days to settle,
was approximately $39.1 billion as of December 31, 2011. We have a revolving credit facility in the amount of
$2.75 billion which could be used for general corporate purposes, including to provide liquidity in the event of
one or more settlement failures by our customers. In the event that MasterCard effects a payment on behalf of a
failed customer, MasterCard may seek an assignment of the underlying receivables from its other customers.
Subject to approval by our Board of Directors, customers may be charged for the amount of any settlement loss
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