The global economy is deeply affected by the rise of credit card use in emerging markets. As citizens of developing nations gain access to mainstream credit cards, they are empowered to participate more in their national economies and in the global marketplace. Since the world economy is increasingly connected, the growth of credit can produce benefits that are widely felt.
MasterCard’s recent story offers an interesting example of international development. Last May, MasterCard reported a net income gain of 12% over the previous year. While this number disappointed some analysts, it is clear that MasterCard is a healthy company with enormous potential. Critically, MasterCard’s May report showed that the company’s fate is indisputably linked with growth in emerging markets. According to the report, MasterCard’s transaction volume grew by 20% in the developing world. Meanwhile, US transactions only expanded by 4%.
In Asia, Africa and the Middle East, people are demonstrating a growing hunger for credit. Through development in these regions, major credit card companies will find relief from the regulatory and economic pressures that are driving down credit use in the United States. With more secure revenues, these companies should have fewer incentives to push new fees and restrictions on U.S customers.
After China, India is the world’s second most populous nation. While the Chinese government obstructs credit card companies fairly often, India is embracing credit cards with open arms. The Times of India reports that the nation’s average monthly spend-per-card number has risen 42% over the past two years. This growth is accelerated by an appreciable drop in Indian credit card defaults over the past few years. Credit consumers in developing nations are usually quick to learn the value of good credit ratings.
As credit card usage grows in India, issuing banks are doing a fine job of navigating a regulatory bureaucracy that is famously sluggish and problematic. With widely disparate regulatory systems, developing nations offer excellent case studies in the effects of financial regulations. In many cases, international merchant services are more competitive and responsive to marketplace demands. While proper oversight and consumer protection is important, international case studies emphasize the dangers of saddling financial companies and merchant services providers with stifling regulations.