Following MasterCard's (MA.US) second quarter earnings release, UBS has increased its price target from $670 to $690 while maintaining a "Buy" rating. The acceleration in value-added services (VAS&S) supported strong revenue performance, enabling the company to exceed Q2 expectations and raise its fiscal 2025 guidance.

MasterCard achieved approximately 200 basis points of organic FX-neutral growth acceleration in its value-added services segment (representing about 39% of net revenue), reaching around 18% growth compared to approximately 16% in Q1 (adjusted for leap year). Strong performance in data processing operations, which recognizes revenue from FX transaction volumes, drove total organic FX-neutral net revenue growth of approximately 15%.

From a volume perspective, the company showed relatively stable to slightly decelerating trends, particularly in cross-border FX growth outside Europe, which slowed to 13% year-over-year (compared to 16% in Q1). These metrics align with Visa (V.US) at monthly frequencies and July completion rates (global approximately 10%, US approximately 7%, cross-border outside Europe approximately 13%, compared to Visa's growth of approximately 8%, 7%, and 11% respectively).

Despite achieving strong double-digit revenue growth in the first half, MasterCard faces headwinds from discrete items causing slight growth deceleration in the second half. However, updated guidance importantly moderates the implied growth expectations for H2, with Q3 high growth expectations and Q4 implied growth projections being revised upward.

Specifically, the company will accommodate Citizens (US debit migration began early 2024, lasting approximately 6 months), Wells Fargo (US commercial credit conversion completed in Q2 2024), pricing adjustments (US pricing implemented April 2024, Europe cross-border July 2024), and initial Capital One US debit transition (pilot conversions have begun). UBS models incorporate these dynamics into US volume forecasts, indicating potential volume slowdown in H2 2025 through early 2026, depending on Capital One migration pace and underlying trends.

UBS notes minimal revenue impact from US debit given the typically lower cross-border attachment rates among debit customers (according to recent UBS research, MasterCard's cross-border net revenue represents approximately 44% of total).

Overall, UBS believes MasterCard's three major US business transformations (Capital One Debit, Citizens Debit, Wells Fargo SMB commercial credit) will result in approximately 300-400 basis points of US volume decline at peak impact (Q2/Q3 2026, depending on Capital One Debit timing).

As reference, Citizens Debit migration from Visa to MasterCard began early 2024, requiring 6 months for complete conversion. The portfolio represented approximately $42 billion in 2023 volume, accounting for 1.6% of MasterCard's 2023 US volume and 3.5% of US debit according to Nilson data.

Similarly, Wells Fargo's small business commercial credit fully migrated to MasterCard in Q2 2024, representing approximately $19 billion in 2022 volume (0.8% of MasterCard's 2022 US volume and 1.5% of US credit per Nilson data).

Finally, Capital One Debit portfolio began migration in June (early pilot phase involving limited users), expected to transition to Discover Network by early 2026. The portfolio represented approximately $67 billion in debit transactions in 2023 (about 2.5% of US volume and 6% of US debit per Nilson data).

For MasterCard's US debit business overall, UBS expects approximately 550-600 basis points of deceleration related to Capital One Debit by mid-2026, offset by approximately 350 basis points of benefit from Citizens Debit, resulting in total deceleration of approximately 900-950 basis points (assuming approximately 200 basis points from Citizens Debit already included in Q2 2024 baseline).

In other words, UBS anticipates approximately 700-750 basis points of US debit deceleration from Q2 2024 growth levels through H1 2026. For total US volume, this translates to approximately 300-350 basis points of debit-related deceleration versus Q2 2024.

Additionally, the smaller Wells Fargo SMB credit portfolio conversion will contribute another 25-50 basis points of US volume reduction, bringing total US volume deceleration to approximately 300-400 basis points by Q2 2026.