Mastercard and Visa are taking very different approaches to the payments market, resulting in very different operating outcomes. Mastercard is focusing on growth in emerging markets and merchant acquiring (especially consulting services for merchants); Visa is pursuing mature markets with aggressive cost control and sales incentives to drive revenue growth. 

Top line results for each vendor in the quarter ending June 30, 2014were: 

• Visa: $3,155m, up 5.1% y/y
• Mastercard: $2,377m, up 13.4% y/y.

Looking more closely at each vendors' income statement: 

Visa continues to grow revenues at a moderate pace due to increasing sales incentives. Earnings, overall are growing faster due to concerted operating cost control. Per share earnings are also growing faster than revenues due to share buybacks. The income statement dynamics can be shown in an income statement percent growth waterfall for Q3 FY 2014:

• Overall revenues: +5.1%
• Number cards outstanding: +6.0%
• Payments volume: +9.0%
• Net income: +11.0%
• Net income per share: +15%
• Sales incentives: +22%

This waterfall shows that revenues are growing at a level similar to recent quarters, but the cost of generating those revenues (selling costs: pricing reductions and sales incentives) keeps growing at a faster rate. Aggressive share buybacks are driving EPS up even faster than prices and marketing. 

Visa's moderate revenue growth coupled with strong operating earnings (+10.5%) is typical of most payments vendors (and most IT services vendors) today. However, it does mean the business is becoming progressively less efficient at generating earnings (payments volume grew 12%, much faster than revenues or operating earnings, meaning pricing or revenue per payment fell). Pricing can only continue to fall for so long before margins begin to shrink despite operating cost cutting. Declining prices have been going on for three years. 

Mastercard, in contrast to Visa above, is growing revenues faster than cards and transaction volumes.  

• Overall revenues: +13.4%
• Number cards outstanding: +12.6%
• Payments volume: +11.4%
• Net income: +9.8%
• Net income per share: +14.3%
• Advertising and marketing: -7.0%

Mastercard is able to grow its revenues faster than cards and transactions because it has pricing power. The pricing power reflects it aggressive push into key markets (outside the mature markets) and key services (merchant acquiring services, especially consulting) where pricing reflects the introduction of services under conditions of uncertainty. 

All levels of Mastercard's income statement waterfall show strong growth in double digits (except sales cost which is declining, a plus) versus Visa.

When the next downturn in consumer spending comes in the next one to two years, Mastercard will be better able to withstand the downturn with a client base tilted towards emerging market.

Visa will face a downturn with a client base tilted towards mature markets, where consumer debt levels will make the downturn harder and more resistant to sales incentives. Visa needs to aggressively focus on building out its emerging market presence faster, even if it means slower net income growth in the short term.