By Sudarshan Varadhan
(Reuters) - MasterCard Inc
MasterCard was also hurt by a strong dollar as markets outside the United States account for nearly 60 percent of its purchase volumes.
The company paid $940 million in rebates and incentives in the second quarter, up 21 percent from a year earlier.
Mastercard usually pays higher incentives to its partners than larger rival Visa Inc
Client incentives accounted for nearly 28 percent of MasterCard's gross revenue in the quarter, way above Visa's 16 percent.
MasterCard's cross-border volumes - the value of transactions made by card holders outside the card-issuer's country - jumped 17 percent.
The company's worldwide gross dollar volume rose 12.8 percent on a constant-currency basis, but just 1.4 percent in dollar terms, Sandler O'Neill Partners analyst Christopher Donat wrote in a note.
The dollar has risen about 21 percent in the past year.
MasterCard said it was facing challenges in Latin America and Asia Pacific, mainly in Brazil and China.
The company, however, is investing in China after the country said in April that it would open up its market for clearing domestic bank card transactions.
MasterCard will be ready to start processing domestic transactions in China by the end of 2016, Chief Executive Ajay Banga said on a conference call.
MasterCard currently has a tie-up with Chinese bank UnionPay to issue co-branded cards that Chinese people could use when traveling overseas.
The association is expected to give the company an edge over Visa, which is gearing up to take on MasterCard in the Europe market through a potential combination with former subsidiary Visa Europe Ltd.
Any potential implications of a combination of Visa and Visa Europe on pricing and yield depends on "how long it will take for them to put the companies together," Banga said.
MasterCard's net income fell 1.1 percent to $921 million in the quarter ended June 30 due to a $44 million after-tax charge related to a litigation settlement.
Excluding the charge, MasterCard earned 85 cents per share.
Net revenue rose 0.9 percent to $2.39 billion.
Analysts on average had expected earnings of 85 cents per share and revenue of $2.41 billion, according to Thomson Reuters I/B/E/S.
MasterCard's shares were little changed at $95.16 in noon trading, recovering from a 2 percent decline earlier.
(Editing by Kirti Pandey)
