Visa and MasterCard’s latest quarterly results starkly
illustrate how debit is continuing to take a bigger share of
payments worldwide, with Visa’s debit volumes in the US surpassing
credit volumes for the first time. Despite the slump, both networks
have offset drops in volumes by cutting costs, as Victoria Conroy

 Payment Networks

It is not just consumers that are reining in their spending these
days – the payment networks Visa and MasterCard are cutting their
discretionary spending too, most notably in the areas of
advertising and marketing. It seems ironic that the two behemoths
are urging consumers to stop using cash so much, while they
themselves scramble to boost their own cash reserves, but in the
current economic environment, who could blame them?

Visa Inc may have recorded a 71 percent jump in net income for the
fiscal second quarter, ending March 2009, compared to a year ago,
but the absence in this quarter of a $292 million litigation
provision included in the year-ago period accounts for the bulk of
the rise in net income to $536 million, compared to $314 million a
year ago.

Total operating revenue was $1.6 billion, compared to $1.4 billion
in the year-ago period, helped by Visa slashing its advertising,
marketing and promotion expenses to $196 million compared to $210
million in the prior quarter and $320 million in the third quarter
of 2008. The third quarter of 2008 was when the Beijing Olympic
Games (of which Visa is a sponsor) took place, and now that Visa’s
new global ad campaign, ‘More People Go With Visa’ is live, it can
be expected that Visa will continue to penny-pinch in the
promotions area and leave the leg-work to its bank issuers to drum
up business.

Visa debit surpasses credit in the US

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Visa Inc’s payment volumes, as expected, show continued growth in
debit at the expense of credit, and in the US Visa debit payment
volume jumped by 5.5 percent to reach $206 billion, surpassing US
credit payment volume for the first time. Debit transactions
accounted for almost 70 percent of total US Visa payment
transactions in the latest quarter, which according to Visa
reflects an increasing number of consumers using debit cards for
non-discretionary purchases like food and clothing –
non-discretionary spending accounted for 52 percent of US debit

MasterCard hints at volume stabilisation

MasterCard Worldwide’s first quarter 2009 results reflected the
impact of the volatile foreign exchange market on cross-border
volumes, with net income dropping 7.8 percent to $367 million. The
company made significant improvements in operating expenses, which
dropped 10.8 percent on the back of a 35.4 percent cut in marketing
and advertising expenses from $179 million in the year-ago period
to $115.9 million.

The number of MasterCard-branded cards worldwide grew 4 percent to
967 million in the quarter, with the bulk of the growth driven
mainly by debit and prepaid issuance outside the US. As of March
2009 there are approximately 1.6 billion MasterCard and Maestro
branded cards issued worldwide.

MasterCard’s total volume including cash volumes dropped from $609
billion in the year-ago period to $550 billion, with credit payment
volumes in the US sliding 13.9 percent to $113 billion, although
credit payment volumes in the rest of the world rose by 7.1 percent
to $194 billion. Debit payment volumes in the US rose by 4.9
percent to $79 billion, with the rest of the world recording a 12.9
percent rise to $25 billion.

MasterCard’s CEO and president Robert Selander hinted during a
conference call that the company’s spending pulse data for the US
retail sector indicated that the pace of payment volume contraction
appears to be stabilising in some retail categories. Selander added
that he expected revenue in 2009 to fall below the company’s
minimum average annual growth rate performance objective of 12

A glimmer of hope that the US economy may be on the road to
recovery came on 8 May, when unemployment statistics showed that
the official unemployment rate had risen to 8.9 percent in April,
lower than had been predicted. Payrolls fell by 539,000 after a
drop of 699,000 in March, which may indicate that although the US
labour market is still weakening, an economic recovery may occur in
the second half of the year. However, payment networks and issuers
recognise that it will take much longer for consumer spending to
pick up – and further rounds of cost-cutting may be necessary in
the months ahead.

payment networks