Adhering to conditions laid under new Russian regulations, MasterCard Inc. (MA) has agreed to go through the Central Bank of Russia for processing its cards within the region. Last year, all card giants, including Visa Inc. (V), had been swamped by fresh regulatory amendments in the National System of Payment Cards (NSPC), charged after the Western sanctions were implemented on some Russian banks.
The NSPC mandates that MasterCard will have to team up with Russia’s Central Bank locally, maintain a domestic processing center in the country and use Russian technology for its operations. Meanwhile, the implementation deadline for switching to a local partner for payment processing was postponed to Mar 2015 from Oct 2014. While minimal effect is anticipated on MasterCard’s top line in 2014, amendments in Russian payments laws are likely to weigh on the company’s revenues in 2015.
On the other hand, the new payments laws are not expected to affect cardholders, although refusal to abide by the mandates would cost MasterCard an enormous sum as payment of security deposit to Russia.
Being a global operating organization, MasterCard is subject to increasing global regulatory focus in the payments industry. In Sep 2014, European Union (EU) capped interchange fees at lower of 0.2% or €0.07 for debit-card payments and 0.3% for credit cards following a final verdict expected in the first half of 2015, thereby warranting higher concessions from the company.
MasterCard enjoys a strong capital position, with its robust inorganic and organic growth initiatives, overall propelling long-term growth. However, difficult comps, sluggish spending rate, timing of the deal renewals and economic volatility continue to add to the financial and operating risks of the company. Alongside, such unavoidable regulations and litigation processes have hindered cash flows from time to time, which could otherwise have been utilized for enhancing operations and shareholder value.
Zacks Rank
MasterCard carries a Zacks Rank #3 (Hold). Some better-ranked financial stocks like Xoom Corp. (XOOM) and Alliance Data Systems Corp. (ADS), each carrying a Zacks Rank #2 (Buy), are worth reckoning.
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