Visa, Mastercard, Synchrony Results Spotlight Credit Rebound — But for How Long?

The payment networks that have reported earnings thus far — Visa, Mastercard and American Express — show a full-fledged resurgence in credit spending, after green shoots started to emerge in previous quarters.

And the rebound, of course, comes right into the teeth of rising rates. So the wild card is how long the renaissance will last.

Double-digit percentage increases, all around, were the broad themes of the most recent spate of reports. Getting a bit more granular, Mastercard, for example, posted a 23% increase in gross daily volume; within that headline number, the credit growth was 34%, while outside the U.S. that tally was 20%.

Read also: Mastercard: Contactless Payments Now 50% of Global in-Person Transactions

Visa’s own results showed that holiday retail spending helped buoy credit spending, which management said on the earnings call was “especially strong” — gaining more than 40% over 2019 as total global payments volumes gained 20% year over year and were up 26% over 2019. U.S. payments volume grew 22%, up 32% over 2019, both higher than Q4. Credit grew 27% and improved 6 points to 23% above 2019. Management pointed at affluent consumer and small business spending as key drivers of credit spending. Looking out into January, post the end of the December period, credit spending grew by 29% overall, where in the U.S. over that same period it was up 25%.

Visa CFO Vasant Prabhu said that “credit is in a recovery mode, but debit is very resilient even as credit recovers,” adding that for payments as a whole, “the underlying sustainable and secular growth trends are also above trend relative to where they were pre-pandemic.”

American Express showed in its fourth-quarter results that billed business was up 32% year over year to $316.2 billion, and up 12% from 2019’s fourth-quarter levels.

Online spending of goods and services was up 16% year over year in the fourth quarter. Offline spending gained 28% in the same timeframe.

During the conference call with analysts, CEO Stephen Squeri noted that American Express had seen continued increases in goods and spending, which was 24% above pre pandemic levels. Travel and entertainment spending continues to rebound, and is 82% of pre-pandemic levels. The company said at spending totals stood at $6,531 per cardmember in the US.

See: American Express: US Cardholders Spent More Than $6,500 in Q4

Separately and beyond the realm of the payment networks, Synchrony Financial’s own results, reported Friday, show that purchase volumes per account were up 13% year on year, as measured in the fourth quarter. Commentary on the conference call with analysts show that for the year, the company achieved almost 25 million new account originations and record purchase volume of $166 billion and a 19% increase in spend per active account.

Credit Metric Improvements 

It’s important to note that the most recent results from these companies (and from the banks) show a general improvement in credit metrics. For example, in the fourth quarter, Synchrony reported that loan receivables that were at least 30 days past due were 2.6%, compared to more than 3% in the similar period a year ago. Net chargeoffs, at about 2.4% of average loan receivables, were better then the roughly 3.2% seen a year ago. Similarly, AmEx said its net writeoff rate (principal only) was 60 basis points, compared to 1.9% a year ago. Loans that were at least 30 days past due were 70 basis points, down from 100 basis points a year ago.

The question is what comes next. Rising rates translate, sooner rather then later (and often, well, sooner) into higher interest rates charged on the cards. Rate hikes will trigger a delicate balancing act among cardholders who have been able to spend, flush with savings accumulated during the pandemic, and a range of debt obligations that have become more expensive (while the dollar buys fewer groceries, etc.).

In an interview with Karen Webster that published on Friday (Jan. 28), LendingClub CEO Scott Sanborn said recessions have been marked by periods of deteriorating credit. But credit held up well during the 2020 recession and has continued to be strong since then.

LendingClub, he said, is expecting a return to pre-pandemic levels of delinquencies.

More than half of consumers live paycheck to paycheck, PYMNTS research has found, indicating that the “stretch” to meet monthly financial obligations will become incrementally tougher in the months ahead, which would have a negative ripple effect on the chargeoff and delinquency rates as noted above. It may be the case that earnings reports — say, a year from now — may have a different tone than has been seen at the beginning of 2022.