Dive Brief:

• Mastercard on Thursday followed its larger competitor Visa in reporting a negative impact on earnings for the first quarter of the year due to a decline in travel spending caused by the war in Iran. The chief financial officer for the smaller network said the company assumed the conflict will wind down by June.
• Mastercard executives said the economy remains relatively healthy and pointed to innovations in value-added services, stablecoins and agentic commerce as continuing to bolster revenue and buoy future growth prospects.
• “The backdrop remains uncertain, driven by geopolitical tensions, which has put some pressure on cross-border travel,” Mastercard CEO Michael Miebach said during a webcast with analysts who follow the company. “Overall, labor markets continue to be balanced, and wages are still outpacing inflation in most major markets.”

Dive Insight:

Purchase, New York-based Mastercard, the second-largest U.S. card network behind Visa, reported that first-quarter profits rose 18% to $3.9 billion, despite the dampening effect of the conflict on international travel, especially in the Middle East.

“We assume the conflict ends in Q2 and the related headwinds will be largest in Q2 and then progressively recover as we move through the second half of the year,” Chief Financial Officer Sachin Mehra said on the webcast, noting that the impact is largest on cross-border travel.

Visa noted a similar drag on travel spending in its earnings report earlier this week due to the war waged by the U.S. and Israel starting in late February. The “step down” was driven by the impacts of the Middle East conflict, Visa Chief Financial Officer Chris Suh told analysts on a Tuesday webcast, based on data in March and April. 

Miebach hinted that Mastercard could take unspecified actions, perhaps trimming expenses, if the conflict and its related pressures don’t ebb. “As we've done consistently, we're monitoring the situation in the Middle East and the global economy, and we will adjust as needed,” he said on the webcast.

Mastercard’s first-quarter worldwide payments volume rose 7% to $2.7 trillion, with growth in the U.S. at 4% being lower than the 9% growth outside the country.

Mastercard has pursued innovations in stablecoins, spurred partly by passage of the Genius Act last year, as well as agentic commerce, which is in the early stages of development, but is expected to one day generate significant additional spending. 

Mastercard agreed to purchase London-based stablecoin infrastructure startup BVNK last month for as much as $1.8 billion, with $300 million contingent on meeting certain goals, to further its stablecoin and blockchain strategy. The card network envisions using BVNK, which is connected to most major blockchain networks, to build a bridge between stablecoin and fiat currencies.

“We believe that BVNK puts us in a position in-house, natively, to drive that interoperability and trust layer in that digital assets world, [with] stablecoins, tokenized bank deposits, etc.,” Miebach said on the webcast. 

Mastercard is “moving with a greater sense of urgency” on its stablecoin strategy, William Blair analysts said in a Thursday note to the investment firm’s clients regarding the first-quarter report, pointing to the BVNK acquisition.

San Francisco-based Visa nodded to the benefits of stablecoins. The economics of using a Visa debit card to spend stablecoins from a digital wallet at a restaurant or grocery store will “look just like our normal product,” Visa CEO Ryan McInerney said in response to an analyst’s question about the expected “unit economics.” 

With respect to a real-time payments network innovation Mastercard has pursued for years, the strategy hasn’t changed, Miebach said. He declined comment on what he called “rumors,” with respect to media reports last month that the company is considering selling a real-time payments business that it acquired in 2019.

“That strategy still holds – there's no question about that, because real-time is very much in focus,” Miebach said in answering an analyst question on the webcast.

Mastercard’s net revenue rose 16% to $8.4 billion, with income from its value-added services division climbing at a faster rate, 22%, to $3.45 billion, and income from the payments network revenue increasing at a slower 12% rate to nearly $5 billion, according to the earnings presentation Thursday.

For long-term revenue growth, the William Blair analysts said they favor Mastercard versus Visa, despite Capital One Financial moving some business from Mastercard to the Discover Financial Services card network it completed acquiring last year. They also wrote that an effort by European banks to create a competitive network to Mastercard and Visa isn’t a threat, in their opinion.

“We contend these discrete events do not reflect underlying business momentum, pricing power, and VAS leadership” the analysts wrote. “We see Mastercard playing an integral role in opening closed loops even as the EU tries to stand up an autonomous network, which we believe is unlikely to succeed.”