Visa, MasterCard could be hurt by lower card usage
NEW YORK—Americans have reached for their credit cards less often this year. That's bad news for Visa and MasterCard, which report their quarterly earnings Wednesday.
MasterCard is scheduled to report results before the stock market opens, and Visa plans to release results after the market closes.
WHAT TO WATCH FOR: Consumer spending, which accounts for 70 percent of economic growth, rose 2.9 percent from January through March, the fastest pace in more than a year.
That would suggest a great start to the year for Visa and MasterCard, which process credit card and debit card payments. But while Americans spent more, they charged less. Credit card charges fell in January and February by $5 billion, according to the Federal Reserve.
The card companies should be helped by an increase in card use by overseas customers and by affluent cardholders. Sales of jewelry and other baubles have remained high at upscale retailers like Saks Inc. and Tiffany & Co. American Express' well-heeled cardholders charged 12 percent more in the first three months of this year than a year earlier.
WHY IT MATTERS: Visa and MasterCard are two of the world's largest processors of debit card and credit card payments.
The financial crisis and recession led Americans to save more and try to control spending. Almost all banks are already reporting that defaults are at record lows.
With the economy still uncertain, consumers may not be ready to run up balances again. Consumers carried $799 billion in credit card debt in February, 15 percent less than they held in December 2007, the first month of the Great Recession.
The trends are worrisome for both companies. Visa and MasterCard make money by charging processing fees, so they need people to use their credit cards more.
The companies could make up some of the decline from debit card usage. But most banks that issue debit cards are discouraging customers from using them by doing away with rewards programs. That's because new regulations limit the fees banks can collect from debit cards.
WHAT'S EXPECTED: Analysts expect Visa to earn $1.51 per share on revenue of $2.4 billion, and MasterCard to earn $5.29 a share on revenue of $1.73 billion, according to data provider FactSet.
LAST YEAR'S QUARTER: Visa earned $1.23 per share on revenue of $2.24 billion. MasterCard posted net income of $4.29 a share on revenue of $1.5 billion.