asterCard Worldwide delivered upbeat news overall in its first earnings report as a public company. Second quarter net revenue was up 9.7% to $846 million, driven by dollar volume growth, processing growth and new cross-border transaction fees.

Gross domestic volume, which includes purchases and cash disbursements, grew 16.4%, to $485 billion. Purchase volume was up 17.5%. Excluding special items, net earnings were $101 million, or $0.74 per share. Including special items, such as a large share donation to the MasterCard Foundation that coincided with the company's initial public offering, the company recorded a loss of $310 million.

MasterCard also reserved another $23 million for legal settlements. Litigation obligations increased $44 million "due to settlement accruals and interest ... on U.S. merchant lawsuit liability," said MasterCard Chief Financial Officer Chris McWilton.

He attributed one-third of the revenue growth to pricing changes. On April 1, MasterCard instituted a charge to issuers and acquirers for cross-border currency conversions, regardless of whether a third party handled transactions.

At the same time, the company lowered conversion prices to issuers. The net effect was an extra $86 million in revenue. "That's why you're seeing the operations revenue per transaction bump up this quarter," McWilton said on an Aug. 2, 2006, conference call.

Faster growth of MasterCard-branded debit transactions in the United States over the prior year is due to incentives offered to convert a large card portfolio, MasterCard Chief Executive Officer Robert W. Selander said. Debit growth was 47%. Credit purchase volume was also up 9.7%, "which is strong given the size and maturity of this market."

The loyalty benefit

Master Card's PayPass program was another bright spot. The company reported that 10 million cards have been issued, with 32,000 merchants worldwide equipped to accept contactless payments. A PayPass pilot with the New York Metropolitan Transit Authority launched in July.

Already, those merchants equipped with PayPass terminals are seeing "significantly enhanced consumer loyalty," Selander said. "The frequency of purchases at those merchants has gone up dramatically within a given cohort of customers."

"The early results are encouraging," said Kenneth A. Posner, an Analyst with Morgan Stanley. "Ultimately, it [PayPass] could compete with PIN debit."

Another brand win for the card Association was Belgium's decision last quarter to convert its national debit card to MasterCard's Maestro brand. The announcement was "the first major national decision" by a European Union member in anticipation of the transition to a Single European Payments Area by 2010, Selander said.