MasterCard 2011 Annual Report Download - page 59

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• Tiered pricing, with rates decreasing as customers meet incremental volume/transaction hurdles
• Geographic region or country
• Retail purchase or cash withdrawal
• Processed or not processed by MasterCard
In general, cross-border transactions generate higher revenue than domestic transactions since cross-border
fees are higher than domestic fees, and in most cases also include fees for currency conversion.
We review our pricing and implement pricing changes on an ongoing basis. In addition, standard pricing
varies among our regional businesses, and such pricing can be modified for our customers through incentive and
rebate agreements.
The Company classifies its net revenues into the following five categories:
1. Domestic assessments: Domestic assessments are fees charged to issuers and acquirers based
primarily on the volume of activity on cards that carry our brands where the acquirer country and the
issuer country are the same. A portion of these assessments is estimated based on aggregate transaction
information collected from our systems and projected customer performance and is calculated by
converting the aggregate volume of usage (purchases, cash disbursements, balance transfers and
convenience checks) from local currency to the billing currency and then multiplying by the specific
price. In addition, domestic assessments include items such as card assessments, which are fees
charged on the number of cards issued or assessments for specific purposes, such as acceptance
development or market development programs. Acceptance development fees are charged primarily to
U.S. issuers based on components of volume, and support our focus on developing merchant
relationships and promoting acceptance at the point of sale. Market development fees are charged
primarily to issuers and acquirers based on components of volume, and support our focus on building
brand awareness and card activation, increasing purchase volumes, cross-border card usage, and other
general marketing purposes.
2. Cross-border volume fees: Cross-border volume fees are charged to issuers and acquirers based on
the volume of activity on cards that carry our brands where the acquirer country and the issuer country
are different. Cross-border volume fees are calculated by converting the aggregate volume of usage
(purchases and cash disbursements) from local currency to the billing currency and then multiplying by
the specific price. Cross-border volume fees also include fees charged to issuers for performing
currency conversion services.
3. Transaction processing fees: Transaction processing fees are charged for both domestic and cross-
border transactions and are primarily based on the number of transactions. These fees are calculated by
multiplying the number and type of transactions by the specific price for each service. Transaction
processing fees include charges for the following:
•Transaction Switching—Authorization, Clearing and Settlement.
a. Authorization refers to the process by which a transaction is routed to the issuer for approval
and then a decision whether or not to approve the transaction is made by the issuer or, in
certain circumstances such as when the issuer’s systems are unavailable or cannot be
contacted, by MasterCard or others on behalf of the issuer in accordance with either the
issuer’s instructions or applicable rules (also known as “stand-in”). Our standards, which
may vary across regions, establish the circumstances under which merchants and acquirers
must seek authorization of transactions. Fees for authorization are primarily paid by issuers.
b. Clearing refers to the exchange of financial transaction information between issuers and
acquirers after a transaction has been successfully conducted at the point of interaction.
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