The latest quarterly results from Visa
Inc and MasterCard indicate that, although payment volumes are
continuing to grow, the rate of growth is slowing markedly in
tandem with the slowing of the US and other market economies, as
consumers pull back on spending due to a myriad of inflationary

Visa Inc’s results for the fiscal fourth quarter ended 30 June
2008 show its net loss was $356 million, compared to $1.66 billion
in the year-ago period, while net income amounted to $448 million,
compared to $196 million a year earlier. Total payment volumes rose
15.2 percent to $699 billion from a year earlier as the number of
transactions rose 14 percent to 11.5 billion, compared to 10.1
billion in the same period 12 months ago.

For MasterCard, net income for its third quarter ended 30
September was $322 million, excluding a special item related to its
recent anti-trust settlement with Discover, and a net loss of $194
million taking into account the Discover settlement. MasterCard’s
net revenue for the third quarter of 2008 was $1.3 billion, a 23.6
percent increase compared to the year-ago period.

Credit growth slowing

Although credit volumes are continuing to grow for both
networks, the rate of growth is slowing, particularly in the US,
where Visa reported credit payment volumes of $213 billion, a 5
percent increase compared to the 8 percent increase in the quarter
ended March.

For MasterCard, the company reported US payment volume of $141
billion, an increase of just 1.5 percent compared to the year-ago
period, when credit payment volume growth stood at 7.1 percent.

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Outside of the US, Visa reported credit payment volumes of $238
billion, a rise of 22.6 percent. MasterCard reported credit payment
volumes of $248 billion outside of the US, a growth rate of 19.2

Debit continues to be the major performance bright spot for both
networks, with Visa reporting US payment volumes of $210 billion, a
rise of 15.1 percent, and worldwide debit payment volumes of $38
billion, a 40.2 percent increase.

However, Visa’s debit payment volume growth is also slowing down
slightly, as in the prior quarter ended March US and worldwide
debit payment volume growth was 16.3 percent and 44.1 percent
respectively. For MasterCard, the company reported US debit payment
volume of $78 billion in the third quarter, an increase of 17.5
percent, and $30 billion outside of the US, a rise of 17.6

Growth forecasts cautious

However, both networks are also preparing for the global
economic situation to get even worse.

“Given the uncertainty over the longer-term direction of the
economy and the globe for the full year of 2009 and 2010, we are
targeting the lower end of an estimate of 11 percent to 15 percent
revenue growth,” Visa Inc CEO Joseph Saunders said, adding that
Visa still expects to meet its earnings forecasts.

Moshe Orenbuch, an analyst at Credit Suisse First Boston, told
CI: “Our 2009 forecasts currently contemplate revenue
growth of 8 percent and 7 percent for Visa and MasterCard,
respectively, compared to 14 percent growth for both networks in
our previous estimates.

“We expect continued softening in US credit payments volume for
the balance of calendar year 2008 and early 2009. Given that this
is less than a third of Visa’s total payments volume, we expect
worldwide payments volume to continue to grow at a low-double digit
growth rate.”

Orenbuch added that data from MasterCard indicates payment
volumes “showed a dramatic slowdown in the second half of September
and it slowed further in October.”

He continued: “Management indicated that worldwide credit volume
went from the high-single digits in September to mid-single digits
in October and US credit from low-single digits in September to
negative in October.”

Sanjay Sakhrani, an analyst at Keefe, Bruyette and Woods, told
CI: “MasterCard’s business model is more exposed to credit
card volume, which is a product area that has clearly seen a pretty
marked deceleration in growth [relative to debit].

“Given the defensive bias of card issuers, both from a risk
mitigation standpoint as well as related to the fact that financial
institutions are struggling to shore up their own capital
positions, this is in-turn impeding growth.”