To get a glimpse of the state of spending, one needs only to look at the card networks, the gross dollar volumes and cross-border activity to get a sense of where debit and credit are picking up, and where travel is recovering – and where it’s not.
Mastercard, Visa and American Express (Amex) all report fourth-quarter results this week, and the management commentary on the earnings calls will discuss macro events and shifts in spending patterns, such as the great pivot toward contactless spending, and the use of mobile devices to satisfy daily commerce needs for consumers and corporates alike.
Some Overall Trends
Some general trends connect each of these companies. Chief among them: the rise of online and contactless spending, all in an inexorable move away from cash. American Express said that in its latest quarter, consumer online spending rose 20 percent year on year, while offline spending was down 13 percent. Similarly, commercial online spend was up 1 percent year on year, while offline commercial spending fell 9 percent.
For Mastercard, contactless penetration reached 41 percent of in-person transactions globally compared to 37 percent in the second quarter — and 13 percent a year ago. On Visa’s call, CEO Al Kelly noted that movement away from cash transactions is accelerating, as card-not-present (CNP) activity is “seeing very good volume.” He also said that 43 percent of face-to-face transactions are being done through contactless means — a tally that rose to 65 percent, excluding the United States. Overall, CNP transactions were up 33 percent in the period, indicating that consumers are forming new habits. Mastercard’s CNP was up 20 percent to 30 percent in the weeks immediately following the quarter.
Cross-border spending will be a focus of the calls, as vaccines are slowly making inroads into various nations around the globe, and lockdowns and quarantines are still in effect (depending on where you look). Mastercard’s cross-border volumes were down 36 percent year over year in the third quarter. Visa’s results in this segment were down nearly 30 percent in the period.
B2B, Too
Efforts have long been underway to modernize and digitize corporate payments in the B2B space. The pandemic has spotlighted the need to move away from the paper check (as back offices had been shuttered due to the pandemic and firms across all verticals have shifted to distributed workforce models).
The network approach of Visa and Mastercard, which leverages in-place rails to speed up corporate commerce, likely will get some consideration in the earnings calls. Among those initiatives: Mastercard Track Business Payment Service (BPS), a multi-rail ecosystem that connects buyers and suppliers to move funds and data in a direct flow between those parties.
Visa has said that its B2B activity should see acceleration as the company invests in and promotes B2B Connect. In a recent fireside chat with PYMNTS’ Karen Webster, Alan Koenigsberg, global head of new payment flows at Visa Business Solutions, and Tim Summers, vice president of Visa Direct global segments and market development, said that B2B payments between buyers and suppliers are poised to pick up speed as they travel around the globe. As payments in this estimated $120 trillion market gather tailwinds, reconciliation is of the utmost importance to corporate clients, noted Koenigsberg. Real-time data and payloads, generated automatically and alongside the transactions, enable payments to post much more efficiently. American Express, among its own supply chain payments products, late last year introduced its Early Pay system, which allows buyers and suppliers to automate their transactions and realize billions of dollars in savings through discounts.
Mastercard
Consensus estimates that Mastercard will earn $1.53 on revenues of just over $4 billion, where the top line would represent a decline of nearly 9 percent year over year. Results, scheduled for Thursday (Jan. 28), will also illuminate whether rebounds in spending are fleeting or will be lasting.
In the latest reading, for the third quarter of 2020, gross dollar volumes were up 1.2 percent to $1.6 trillion. Purchase volume was up 2.3 percent to $1.2 trillion.
Drilling down into the U.S., debit was up 20 percent to $299 million, while credit was down a bit more than 12 percent at $214 million in the most recent quarter. CFO Sachin Mehra said on the earnings call that cross-border spending volumes have been healthy across clothing and home improvement, which are discretionary, while grocery spend has been positive as well. Travel will be a key determinant as to how, and when, cross-border spending activity gets on firmer footing.
American Express
The Street has pegged Amex earnings at $1.31 a share, with revenues of $9.4 billion, down about 17.7 percent year over year. The company is due to report earnings on Jan. 26, and we may see a continuation of a rebound evident in third-quarter results, where consumer and commercial segments recovered from the nadirs seen earlier in the year as the pandemic hit.
As the big banks’ earnings presaged earlier this month, losses expected and reserves taken in the financial services arena proved to be a bit pessimistic.
Amex said in its latest results that loss metrics improved quarter to quarter, as net write-offs came in at 2.5 percent versus 2.8 percent in the second quarter. Cardmember loans 30 days past due likewise fell to 1.2 percent from 1.6 percent.
With a nod to loan balances, CFO Jeffrey Campbell said on the call that “based on what we see today, if you assume some continued improvement in spending levels, I would expect this quarter to be the low point for loan balances, and [we’re] looking for those balances to start to grow modestly.”
Non-travel and entertainment spending are metrics to watch; a headline number will be proprietary billed business, defined as activities including cash advances across proprietary cards, which accounted for 86 percent of total billings. Non-travel-related spending is about 88 percent of that tally, and will give observers a sense of how cardholders view debt – and, by extension, their own financial positions. Consumer spending is about 53 percent of total proprietary billed business, while SMB spending accounts for about 40 percent.
The SMB exposure may offer up insight into how Main Street businesses are faring in the wake of continued stimulus spending, the Paycheck Protection Program (PPP) and other measures. In terms of industry spend, retail spending made up 36 percent of Q3’s total (up 3 percent year on year).
Visa
Visa will report on Thursday (Jan. 28). The average estimate of $1.28 a share represents a drop from the $1.46 earnings earned in the fourth quarter a year ago, while consolidated revenues of $5.5 billion would represent a decline of 8.7 percent year over year.
Nonetheless, recent results underscore a rebound from the worst impacts of the pandemic, excluding the headwinds dragging on cross-border spending. Overall payments volume was up 4 percent in the latest period as measured year over year.
Debit spend was up 20 percent to $1.2 trillion, but credit was down 9 percent to $1.1 trillion, representing what could be a reluctance of end users to tap into credit until the economic picture brightens a bit. Per commentary from Chief Financial Officer Vasant Prabhu on the third-quarter call, debit activity is twice the rate seen pre-COVID-19. According to Kelly, consumers want to spend the money they have and not borrow (i.e., use credit) to make purchases.
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