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Their networks continue to handle ever-increasing transaction volumes, but the chief executives of both MasterCard Inc. and Visa Inc. warn of “challenging” times for the U.S. payments market, particularly credit.
Still, both bank card networks in the past 24 hours reported strong profit growth for their quarters ended March 31. “We continue to be encouraged by the transaction growth and cross-border trends we are experiencing in the midst of a challenging economic environment in the United States,” MasterCard president and chief executive Robert W. Selander said at an analysts’ call this morning after reporting first-quarter net income of $446.9 million, up 108% from $214.9 million a year earlier thanks in part to one-time items. He added, “The fundamentals of the business are still very strong.”
But MasterCard’s credit business is in the slow lane, reflecting consumer shifts toward debit in recent years and possibly the belt-tightening by credit card issuers to control chargeoffs. First-quarter credit and charge card purchase transactions grew only 4.6% to 1.49 billion from 1.42 billion a year earlier, and credit/charge card purchase volume in the same period grew just 6.1% on a local currency basis to $131 billion.
Debit, in contrast, continued its strong growth streak. U.S. debit purchase transactions totaled 1.76 billion, up 17.2% from 1.5 billion in 2007’s first quarter. Debit purchase volume grew 18.7% to $75 billion from $63 billion in the prior-year period.
Selander said the mix of purchases is changing in the U.S., noting “a consumer shift away from discretionary purchases, such as luxury retail and home furnishings, to non-discretionary purchases including food and gasoline, which have also been affected by commodities price increases.”
Growth outside the U.S. continued to pull up MasterCard’s results. Worldwide gross domestic volume hit $611 billion, up 14.1% on a local-currency basis. Purchase transactions totaled 6.14 billion, up 13.4% from 5.41 billion in 2007’s first quarter.
Visa, meanwhile, late Monday reported net income of $314 million for its fiscal 2008 second quarter ended March 31, up 27.6% from $246 million in the prior-year quarter.
Like Selander, Visa chairman and chief executive Joseph W. Saunders spoke of a “challenging” U.S. environment. “Though we continue to see some softness in the traditional U.S. credit card growth as we have all year, as we anticipated it is largely but not entirely being offset by debit card and rewards card growth in the U.S. and robust growth internationally,” Saunders said Monday at Visa’s first earnings call since becoming a public company in March.
He added, “At this time we see no discernible trend of the softer U.S. economy meaningfully affecting our payment volumes.” Visa is reporting its operational data, such as transaction and spending volumes, on a quarter-lagging basis behind its revenue, earnings, and other financial figures.
For the first fiscal quarter ended Dec. 31, 2007, Visa recorded 2.46 billion U.S. credit card payment transactions, up 8.5% from 2.27 billion transactions in the prior-year quarter. Credit card purchases grew 9.7% to $218 billion from $199 billion a year earlier.
Visa’s U.S. debit card holders made 4.96 billion payment transactions in the quarter ending Dec. 31, up 15.9% from 4.28 billion transactions in the year-earlier quarter. Debit purchases grew 15.6% to $195 billion from $169 billion in 2006’s fourth quarter.
Total Visa Inc. payments volume was $681 billion in the quarter ending Dec. 31, up 15.8% from the year-earlier quarter when adjusted for currency fluctuations. Payment transactions grew 15.9% to 11.1 billion from 9.57 billion in fiscal 2007’s first quarter.
The Visa Inc. totals do not include Visa Europe, the London-based bank-owned association that was not part of Visa Inc.’s regional consolidation last year (Digital Transactions News, Nov. 10, 2007). Visa spent $338 million in the second fiscal quarter on volume and support incentives for card issuers and merchants, up 81% from $187 million a year earlier.
