Can card issuers heave a sigh of relief that consumers are returning to pre-recession spending patterns on credit and debit cards?
Certain major banks' first-quarter credit and debit card purchase-volume growth rates exceeded analysts' expectations, and the numbers suggest consumers may be opening their wallets wide again after several stagnant quarters.
Visa Inc. and MasterCard Worldwide likely also will post healthy13% to 15% increases in payment volume for the first three months of the year, but their gains may not be as high as the quarter's best-performing card issuers, Keefe Bruyette & Woods said in an April 19 note to investors.
Visa and MasterCard both report quarterly earnings on May 2.
"Overall, most of the credit card issuers reported in-line to slightly stronger year-over-year volume growth, ... which is better than our expectations of tempered volume growth across the networks," the firm said.
Bank of America Corp. and U.S. Bancorp also posted solid debit card purchase volume for the quarter, suggesting debit card use has "seemed to stabilize after a couple quarters of consecutive declining growth rates," the analysts wrote.
One reason the networks' overall payment volume growth rates may not match certain card issuers’ is because banks may claim "substantial" private-label credit card payment volume that does not necessarily flow through card networks. And Visa and MasterCard payment volumes "do not necessarily correlate in absolute terms to the reported network volumes," Keefe, Bruyette & Woods said in its note.
American Express Co.'s worldwide card-billed business rose 12.4% for the quarter ended March 31 (see story).
Capital One Financial Corp.'s U.S. credit card purchase volume for the quarter rose 25% (see story).
Richard Fairbank, Cap One's chairman and CEO, told analysts during a conference call April 19 following the bank's first-quarter earnings announcement that the card issuer's purchase volume "has been growing pretty dramatically."
Cap One has brought in new card partnerships recently that have helped expand its overall card portfolio, he noted. The issuer last year acquired the private-label card portfolio of Kohl's Corp (see story).
Payment-volume growth also is seeing the effects of heavy marketing of Cap One credit card rewards products. One analyst noted that Cap One's payment volume is outpacing interchange-revenue growth.
Cap One earned $328 million in interchange fees during quarter, up 2.5% from $320 million a year earlier.
The interchange fees Cap One disclosed include "payments to some of our partners and some impact from other lines of business," but in general "interchange has had solid growth throughout 2011 and the first quarter of 2012," Fairbank explained.
"So, look, we feel great about the rewards customers we're attracting, and we think that interchange, although it's growing less quickly than purchase volume, I think is going to be a continually strong contributor to the revenue growth of the company," Fairbank said.
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