International Fees Nearly 30% of MasterCard’s Stock Value
International revenues contribute a major percentage of MasterCard (NYSE:MA) revenues because of the higher fees that MasterCard charges on international transactions. The international transaction revenues include higher transaction fees and other special fees like cross-border and currency conversion fees. We believe international growth is one of key drivers for MasterCard and competitors like Visa (NYSE:V) and American Express (NYSE:AXP), which we discussed recently in an article titled 2 Key Value Drivers for MasterCard.
International Fees at a Glance
International fees constitute about 29% of the $293 price estimate for MasterCard, which is around 17% ahead of the current market price. Below we look at the key drivers for the international fee division for MasterCard.
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A significant portion of MasterCard’s revenue earned outside the U.S. comes from cross-border transactions. A cross-border transaction occurs in a transaction in which the cardholder’s and merchant’s countries are different. A cross-border fee is charged to both acquirer’s and issuer’s based on the gross dollar volume.
Besides the cross-border fee, MasterCard also handles the currency conversion for the acquirer bank and the issuer bank. For this currency conversion service, MasterCard charges its customers a currency conversion fee. Like the cross-border fee, a currency conversion fee is also based on the gross dollar volume.
Key Drivers of International Fees
Through 2010 MasterCard charged 0.2% of the dollar value of a transaction as its currency conversion fee. Looking forward we expect this to decline to around 0.1% as competition reduces the amount that card holders.
The cross border fee has been one of the major sources of international revenue for MasterCard. The card company charges a cross border fee of 0.8% of the dollar value of transaction which we expect to decline to about 0.56% by 2013 due to strong competition and mounting pressure from the regulatory authorities.
3. International Transaction GDV
International Transaction GDV grew by 90% from 2006 to 2007. However, due to the economic crisis in 2008, the growth rate for international transaction of GDV dropped to around 30% in 2008, -2.1% in 2009 and 12.6% in 2010. We expect growth to recover to around 15-20% growth rates in the coming years.
Drag the trend lines above to see how these factors impact the stock price, or you can see how they impact the overall model by visiting our site.
See our full analysis of MasterCard