MasterCard 2011 Annual Report Download - page 60

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MasterCard clears transactions among customers through our central and regional processing
systems. MasterCard clearing solutions can be managed with minimal system development,
which has enabled us to accelerate our customers’ ability to develop customized programs
and services. Fees for clearing are primarily paid by issuers.
c. Settlement. Once transactions have been authorized and cleared, MasterCard helps to settle
the transactions by facilitating the exchange of funds between parties. Once clearing is
completed, a daily reconciliation is provided to each customer involved in settlement,
detailing the net amounts by clearing cycle and a final settlement position. Fees for
settlement are primarily paid by issuers.
•Connectivity fees are charged to issuers and acquirers for network access, equipment and the
transmission of authorization and settlement messages. These fees are based on the size of the data
being transmitted through and the number of connections to the Company’s network.
4. Other revenues: Other revenues for other payment-related services are primarily dependent on the
nature of the products or services provided to our customers but are also impacted by other factors,
such as contractual agreements. Examples of other revenues are fees associated with the following:
•Fraud products and services used to prevent or detect fraudulent transactions. This includes warning
bulletin fees which are charged to issuers and acquirers for listing invalid or fraudulent accounts
either electronically or in paper form and for distributing this listing to merchants.
•Cardholder services fees are for benefits provided with MasterCard-branded cards, such as
insurance, telecommunications assistance for lost cards and locating automated teller machines.
•Consulting and research fees are primarily generated by MasterCard Advisors, the Company’s
professional advisory services group. The Company’s business agreements with certain customers
and merchants may include consulting services as an incentive. The contra-revenue associated with
these incentives is included in rebates and incentives.
•Program management services provided to prepaid card issuers. This primarily includes foreign
exchange margin, commissions, load fees, and ATM withdrawal fees paid by cardholders on the
sale and encashment of prepaid cards. See Note 2 (Acquisitions) to the consolidated financial
statements included in Part II, Item 8 of this Report for further discussion.
• The Company also charges for a variety of other payment-related services, including rules
compliance, account and transaction enhancement services, holograms and publications.
5. Rebates and incentives (contra-revenue): Rebates and incentives are provided to certain
MasterCard customers and are recorded as contra-revenue in the same period that performance occurs.
Performance periods vary depending on the type of rebate or incentive, including commitments to the
agreement term, hurdles for volumes, transactions or issuance of new cards, launch of new programs,
or the execution of marketing programs. Rebates and incentives are calculated based on estimated
performance, the timing of new and renewed agreements and the terms of the related business
agreements.
Revenue Analysis
In 2011 and 2010, gross revenues increased $1.4 billion and $841 million, or 18.2% and 12.5%,
respectively. Revenue growth in 2011 was primarily due to increased dollar volume of activity on cards carrying
our brands and increased transactions. Revenue growth in 2010 was primarily due to increased dollar volume of
activity on our cards carrying our brands, higher pricing and increased transactions. Rebates and incentives in
2011 and 2010 increased $202 and $401 million, or 10.0% and 24.8%, versus 2010 and 2009, respectively. Our
net revenues in 2011 and 2010 increased 21.2% and 8.6% versus 2010 and 2009, respectively.
Our revenues are primarily based on transactions and volumes, which are impacted by the number of
transactions and the dollar volume of activity on cards and other devices carrying our brands. In 2011, our
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