As the global economic slowdown turns into full-blown recession in many markets, all eyes are on the payment networks to see just how rapidly payment volumes are being affected. Many in the industry will not be surprised at how US credit card spending is being hammered, but what will shock is the degree of deterioration in recent months.
The stand-out figure from MasterCard Incorporated’s fourth-quarter 2008 results, for the period ending 30 December 2008, was US credit and charge card gross dollar volume (GDV), including POS spending and cash withdrawals, actually falling by 11.4 percent to $152 billion in the fourth quarter, compared to $171 billion in the year-ago period.
Much of the decline in MasterCard’s purchase volume occurred in September and October of last year. Visa Inc, whose fiscal 2009 first quarter ended on 30 September 2008, fared rather better, but its credit card figures in the US are certainly nothing to shout about. Its total US volumes for credit cards amounted to $244 billion, a rise of just 1.7 percent compared to the year-ago period.
Visa’s total US debit volumes held up well, rising by 12.4 percent to $280 billion, similar to the growth level seen in the year-ago period. MasterCard’s GDV on debit in the US rose by 5.8 percent to $104 billion in the fourth quarter of 2008, but compare that figure to the 15.9 percent growth in debit GDV in the fourth quarter of 2007, and it’s clear to see that US consumers are putting away the plastic in greater numbers as the months roll on. Another factor to consider is that MasterCard’s US debit market share is much smaller than that of Visa’s, so it will feel the slowdown much more keenly.
One bright spot for MasterCard could come in the form of a pricing change the company is planning to implement in April 2009, with US merchant acquirers seeing the price paid for network access and brand usage fees (NABU) increasing from $0.005 per processed transaction on MasterCard’s network to around $0.0185. According to Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, this should yield MasterCard incremental increases in its earnings per share.