MasterCard 2011 Annual Report Download - page 45

provide services related to card use. A breach of the systems on which sensitive cardholder data and account
information are processed, transmitted or stored could lead to fraudulent activity involving cards carrying our
brands, damage the reputation of our brands and lead to claims against us. In recent years, there have been
several high-profile account data compromise events involving merchants and third-party payment processors
that process, store or transmit payment card data, which affected millions of MasterCard, Visa, Discover,
American Express and other types of cardholders. These events typically involve external agents hacking and
installing malware to compromise the confidentiality and integrity of servers. As a result of such data security
breaches, we may be subject to lawsuits involving payment cards carrying our brands. While most of these
lawsuits do not involve direct claims against us, we could be exposed to damage claims in various circumstances,
which, if upheld, could materially and adversely affect our profitability. Any damage to our reputation or that of
our brands resulting from an account data breach could decrease the use and acceptance of our cards, which in
turn could have a material adverse impact on our transaction volumes, revenue and prospects for future growth,
or increase our costs by leading to additional regulatory burdens being imposed upon us.
An increase in fraudulent activity using our cards could lead to reputational damage to our brands
and could reduce the use and acceptance of our cards.
Criminals are using increasingly sophisticated methods to capture cardholder account information to engage
in illegal activities such as counterfeiting or other fraud. As outsourcing and specialization become a more
acceptable way of doing business in the payments industry, there are more third parties involved in processing
transactions using our cards. Increased fraud levels involving our cards, or misconduct by third parties processing
or otherwise servicing our cards, could lead to regulatory intervention, such as mandatory card re-issuance,
adoption of new technologies or enhanced security requirements, as well as damage to our reputation and
financial damage, which could reduce the use and acceptance of our cards or increase our compliance costs, and
thereby have a material adverse impact on our business.
If we are not able to keep pace with the rapid technological developments in our industry to provide
customers, merchants and cardholders with new and innovative payment programs and services, the use
of our cards could decline, which could reduce our revenue and income or limit our future growth.
The payment card industry is subject to rapid and significant technological changes, including continuing
developments of technologies in the areas of smart cards, radio frequency and proximity payment devices (such
as contactless cards), electronic commerce and mobile commerce, among others. We cannot predict the effect of
technological changes on our business. We rely in part on third parties, including some of our competitors and
potential competitors, for the development of and access to new technologies. We expect that new services and
technologies applicable to the payments industry will continue to emerge, and these new services and
technologies may be superior to, or render obsolete, the technologies we currently use in our card programs and
services. In addition, our ability to adopt new services and technologies that we develop may be inhibited by a
need for industry-wide standards, by resistance from customers or merchants to such changes by the complexity
of our systems or by intellectual property rights of third parties. We have received, and we may in the future
receive, notices or inquiries from other companies suggesting that we may be infringing a pre-existing patent or
that we need to license use of their patents to avoid infringement. Such notices may, among other things, threaten
litigation against us. Our future success will depend, in part, on our ability to develop or adapt to technological
changes and evolving industry standards.
Adverse currency fluctuations and foreign exchange controls could decrease revenue we receive from
our operations outside of the United States.
During 2011, approximately 60.4% of our revenue was generated from activities outside the United States.
Some of the revenue we generate outside the United States is subject to unpredictable currency fluctuations
(including devaluations of currencies) where the values of other currencies change relative to the U.S. dollar.
Resulting exchange gains and losses are included in our net income. Our risk management activities provide
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