MasterCard 2012 Annual Report Download - page 45

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. 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, or to keep prepaid cardholders
whole if an issuer defaults on its obligation to safeguard unspent prepaid funds. Our MasterCard, Maestro and
Cirrus-branded gross legal settlement exposure, which is primarily estimated using the average daily card volume
during the quarter multiplied by the estimated number of days to settle, was approximately $38 billion as of
December 31, 2012. We have a revolving credit facility in the amount of $3 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 the failed customer. Subject to approval by our Board of
Directors, customers may be charged for the amount of any settlement loss incurred during these ordinary course
activities of MasterCard. While we believe that we have sufficient liquidity to cover a settlement failure by our
largest customer on its peak day, the term and amount of our guarantee of obligations to principal customers is
unlimited. As a result, concurrent settlement failures of more than one of our larger customers or of several of
our smaller customers either on a given day or over a condensed period of time may exceed our available
resources and could materially and adversely affect our overall business. In addition, even if we have sufficient
liquidity to cover a settlement failure, we may not be able to recover the cost of such a payment and may
therefore be exposed to significant losses, which could materially and adversely affect our results of operations.
Moreover, during 2012, many of our financial institution customers continued to be directly and adversely
impacted by the unprecedented events in the financial markets which began during 2008 and the economic
turmoil that has ensued. The European financial crisis remains a heightened concern. Our aggregate gross
settlement exposures to Greece, Italy, Portugal and Spain, four of the countries most significantly impacted by
the Eurozone crisis, are less than 5% of our total gross settlement exposure and are being managed through
various planning and risk mitigation practices. Nonetheless, these conditions present increased risk that we may
have to perform under our settlement guarantees.
Separately, MasterCard also provides guarantees to certain customers and other companies indemnifying
them from losses stemming from failures of third parties to perform. For more information on our settlement
exposure and risk assessment and mitigation practices as of December 31, 2012, see Note 19 (Settlement and
Other Risk Management) to the consolidated financial statements included in Part II, Item 8 of this Report.
A failure or breach of our security systems or infrastructure as a result of cyber-attacks could disrupt
our business, result in the disclosure or misuse of confidential or proprietary information, damage our
reputation, increase our costs and cause losses.
Information security risks for payments and technology companies such as MasterCard have significantly
increased in recent years in part because of the proliferation of new technologies, the use of the Internet and
telecommunications technologies to conduct financial transactions, and the increased sophistication and activities
of organized crime, hackers, terrorists and other external parties. These threats may derive from fraud or malice
on the part of our employees or third parties, or may result from human error or accidental technological failure.
These threats include cyber-attacks such as computer viruses, malicious code, phishing attacks or information
security breaches.
Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other
information in our computer systems and networks. Our customers and other parties in the payments value chain,
as well as our cardholders, rely on our digital technologies, computer and email systems, software and networks
to conduct their operations. In addition, to access our products and services, our customers and cardholders
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