Mastercard Is Taking On the World and Winning

The Mastercard (NYSE: MA) logo is pretty ubiquitous in the United States. It adorns credit cards, debit cards, store windows, websites, and credit card processing machines. That speaks to the size and success of the company's business. If you are thinking of buying, or you already own, Mastercard, however, there's another facet to its business that is even more exciting.

What does Mastercard do?

Essentially, Mastercard securely connects buyers and sellers. The payment processor is a giant in the financials sector, but it is really more of a financial technology company. Indeed, the company doesn't actually issue any credit cards, it just agrees to process the transactions for cards that are adorned with its logo. What is going on in the background is fairly complex, but all consumers care about is that the transaction is successfully completed and fraud is minimized.

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Image source: Getty Images.

For matching up buyers and sellers in this way, Mastercard charges a small fee. No single transaction is material, but when you add up all of the transactions the company handles, the numbers get very, very large. In 2024, for example, Mastercard processed $9.8 trillion worth of transactions, up 11% from 2023.That resulted in a 12% revenue increase and a 17% earnings advance.

That, however, is the top-level view. Digging down into Mastercard's business just a little is illuminating.

Where is Mastercard doing business?

The United States is likely the largest single market for Mastercard. In the fourth quarter of 2024 it processed $793 billion worth of transactions in the country, up 9% from the same quarter in 2023. That's a very big number and, given the mature state of the market, represents pretty attractive growth versus the year-ago period. The big drivers of the uptick are increased use of card payments over cash, the ongoing shift toward online shopping (where cash isn't an option), and, perhaps, a touch of inflation.

But here's the most interesting stat; the company's transaction volume increased 12% year over year in the fourth quarter. That means that some other line of business is growing more quickly than the U.S. card processing business. The more rapid growth is coming from Mastercard's foreign operations. Transaction volume outside of the U.S. market rose by 13% to nearly $1.8 trillion.

Although no single country is likely to match the U.S. in size, taken together, foreign countries dwarf the U.S. business. And they are growing more quickly, as well. This is clearly a huge opportunity for Mastercard and one that investors need to pay attention to as the company looks to continue expanding in the future.

There are actually two different issues to watch when you switch from thinking of Mastercard as a U.S. company to Mastercard being a global payment processor. Outside the United States, customers can use their cards within the country they were issued, which creates a normal transaction fee. But customers can also use their cards in a country other than the one in which the card was issued, which creates a transaction fee and a conversion fee. So there's a bigger upside to some of the foreign business than there might seem.

Mastercard's best days are likely to be foreign ones

Mastercard's business is growing strongly, and given the ongoing shift toward digital transactions it likely has years of growth ahead. But the story behind the story here is that Mastercard's best opportunities aren't in its home market; the best growth likely lies outside the United States. As you watch this payment processor's business, you should pay close attention to its non-U.S. business or you might miss the real show.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool has a disclosure policy.