By Bryan Derman
It seems like it’s been a month now that we at Glenbrook – and people all around the payments business – have been holding our collective breath waiting to see what level of purchase volumes would be reported by MasterCard and Visa for Q4 2008.
Well, the results came in the last 24 hours, and while it wasn’t pretty, the numbers weren’t quite so bad as some had feared. In fact, in some ways, they were a mildly pleasant surprise.
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Much of the temporary asphyxiation had come from the constant drip of negative news released by big issuers over the last few weeks – Citigroup North American credit volume down 15 percent, CapitalOne US purchase volume down 11%, and BofA debit volume up only 3.5 percent.
If these industry stalwarts were posting these kinds of results, just how bad might the overall industry volumes be, we wondered.
Well, compared to what we were prepared for, the numbers were okay and so we’ve begun to take on fresh oxygen once again.
|MasterCard||-9.6 %||5.5 %||-4.6 %|
|Visa||-6.0 %||6.0 %||0.0 %|
We should also hasten to point out that we are talking here about U.S. volumes only, and that these are both substantial global companies that posted more favorable results in regions beyond the United States (though one must wonder whether that will persist as the effects of a spreading global recession begin to manifest themselves).
In some respects, these figures really speak to the maturity and pervasiveness of card payments in today’s society. While we believe that cards are still taking share from cash and checks, that well-documented secular shift can no longer readily offset the macroeconomic realities of declining GDP and retail sales. In a country where cards are used to pay for almost everything, it gets harder and harder to grow card volume faster than the overall economy.
In fact, the significant declines on the credit side of the networks’ volume indicate just how economically-sensitive they have become. As consumer budgets have become strained, their efforts to de-lever personal balance sheets and reign in high-ticket expenditures contributed to a disproportionate decline in credit volumes (aided to some extent by credit line reductions from issuers fearful about rising unemployment).
The debit picture was more positive. While 6 percent growth is quite drop from the high-teens to 20 percent growth to which we had become accustomed, it still represents nice outperformance in a quarter where GDP and Personal Consumption Expenditures fell nearly 4 percent (and probably more once final revisions are made). Clearly, debit continues to gain share of consumer payments.
Also, not to be overlooked are two particular sources of headwind. First, comparisons were bound to be difficult in Q4 2008. While the economic gurus recently told us that the current recession actually began in Q4 2007, I remember the 2007 holiday season as relatively buoyant, with major worries confined to the travails of a few overextended homeowners in California, Florida and Nevada. By contrast, we were deep in the doldrums in 2008 by the time frost appeared on our pumpkins (Lehman Brothers made its Chapter 11 filing on 9/15/08).
Second, the precipitous fall in gas prices takes a heavy toll on card payment volume. Speaking in round numbers, the price of gas in Q4 of this year hovered in the range of $1.75 per gallon, roughly the half the level of a year earlier. In a category that represents 6-10 percent of total US card payment volume, that sort of price decline will always leave a mark.
We’ll close by noting (at least anecdotally) that the smaller institutions may have fared better than the behemoths this past quarter. Perhaps the relative absence of concerns about subprime mortgages, credit default swaps, and TARP funding allowed them to maintain better focus on the boring but dependable business of payments.
Of course, next quarter is only three months away and we’ll have to see what happens then….
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