Spotlight on Credit Rebound Visa Results
The payment networks that have reported profits so far – Visa, Mastercard and American Express – are showing a full-fledged resurgence in credit spending, after green shoots started to emerge in previous quarters.
And the rebound, of course, comes right in the teeth of rising rates. The joker is therefore the duration of the rebirth.
Double-digit percentage increases, all around, have been big themes in the latest round of reports. Getting a bit more granular, Mastercard, for example, showed a 23% increase in gross daily volume; within this aggregate figure, credit growth was 34%, while outside the US the figure was 20%.
Read also: Mastercard: contactless payments now account for 50% of global in-person transactions
Visa’s own results showed holiday retail spending helped boost credit spending, which management said on the earnings call was “particularly strong” – gaining more than 40% from 2019, with total global payments volume up 20% year-over-year and 26% in 2019. U.S. payments volume grew 22%, up 32% from 2019 , both higher in the fourth quarter. Credit grew 27% and improved 6 points to 23% from 2019. Management highlighted spending by affluent consumers and small businesses as the primary drivers of credit spending. As for January, after the end of the December period, credit spending increased by 29% overall, while in the United States, during the same period, it increased by 25% .
Visa Chief Financial Officer Vasant Prabhu said “credit is in recovery mode, but debit is very resilient even as credit recovers,” adding that for payments as a whole, “the underlying trends sustainable and secular growth rates are also above trend compared to where they were pre-pandemic.
American Express showed in its fourth-quarter results that billed business rose 32% year-over-year to $316.2 billion, and 12% from fourth-quarter 2019 levels.
Spending on online goods and services rose 16% year over year in the fourth quarter. Offline spending increased by 28% over the same period.
During the conference call with analysts, CEO Stephen Squeri noted that American Express had seen a continued increase in goods and spending, which was 24% above pre-pandemic levels. Travel and entertainment spending continues to rebound and is at 82% of pre-pandemic levels. The company said the total spend was $6,531 per cardholder in the United States.
See: American Express: US cardholders spent more than $6,500 in the fourth quarter
Separately and beyond the realm of payment networks, Synchrony Financial’s own results, released on Friday, show that purchase volumes per account increased by 13% year-on-year, as measured in the fourth trimester. Comments from the conference call with analysts show that for the year the company achieved nearly 25 million new account creations and a record purchase volume of $166 billion and a 19% increase in spending per active account.
Credit metrics enhancements
Importantly, the most recent results from these companies (and banks) show a general improvement in credit metrics. For example, in the fourth quarter, Synchrony reported that loan receivables past due at least 30 days was 2.6%, compared to more than 3% in the same period a year ago. Net write-offs, at around 2.4% of average loan receivables, were better than the roughly 3.2% seen a year ago. Similarly, AmEx said its net write-off rate (principal only) was 60 basis points, down from 1.9% a year ago. Loans past due for at least 30 days were 70 basis points, compared to 100 basis points a year ago.
The question is what comes next. Rising rates translate, sooner rather than later (and often, well, sooner) to higher interest rates being charged on the cards. The rate hikes will trigger a delicate balancing act between cardholders who have been able to spend, flush with savings accumulated during the pandemic, and a range of debt securities that have become more expensive (as the dollar buys less groceries , etc).
In an interview with Karen Webster published Friday, January 28, LendingClub CEO Scott Sanborn said that recessions have been marked by periods of credit deterioration. But credit held up well during the 2020 recession and has remained strong ever since.
LendingClub, he said, expects a return to pre-pandemic delinquency levels.
More than half of consumers are living paycheck to paycheck, according to PYMNTS research, indicating that the “stretch” to meet monthly financial obligations will become increasingly difficult in the coming months, which would have a negative knock-on effect on imputation and delinquency rates, as noted above. Earnings reports – say, a year from now – may have a different tone than seen at the start of 2022.