Mastercard’s Growth Outshines Its Peers in Promising Q2 Results for Credit Card Networks

Despite a lukewarm start to the year and the Fed continuing to raise rates, the credit card industry is enjoying a bull run with positive earning reports. All three payment giants – Visa, Mastercard, and Amex exceeded earnings estimates for the second quarter.

In terms of net profit, Visa earned $4.2 billion, Mastercard’s reached  $2.8 billion, and American Express closed the quarter with  $2.2 billion in profits. In terms of revenue growth, Mastercard emerged as the star performer amidst its peers this quarter. Its earnings grew a solid 10 percent year over year to  $2.7 billion, excluding one-time items.

The overall industry-wide growth can be attributed to increased credit card spending and continued recovery in international travel.

• Visa’s payments volume rose nine percent, while the number of processed transactions on their network increased by 10 percent compared to last year. However, it must be noted that the growth in Visa’s payments volumes has slowed down in recent quarters.

According to Visa CFO Vasant Prabhu, the slowing growth is due to lower fuel prices. “We have seen a slight decrease in average ticket size. Everything we look at says it’s moderating inflation, in particular, fuel inflation, that’s [behind that],” he told Barron’s. In the quarterly earnings call, Prabhu added, “Goods prices spiked due to supply chain bottlenecks and commodity inflation. Excluding these four categories [fuel, retail goods, travel, and food and drug], average ticket size growth is positive”. He explained that the decline  in average ticket size in the four categories was relative to the price hikes caused by the Russian invasion of Ukraine and the post-Omicron travel boom last year.

• As for Mastercard, heavy consumer spending on travel and entertainment has been supporting the company’s strong performance.”Cross-border travel volume showed strong growth again this quarter, reaching 154 percent of pre-pandemic levels,” confirmed Mastercard CEO Michael Miebach to Reuters.

In line with Visa and Mastercard, American Express also witnessed strong cardholder spending, growing eight percent on an FX-adjusted basis, with travel and entertainment specifically growing 14 percent. They also saw a notable increase in reservations on their Resy restaurant platform, which touched a quarterly high.

The average credit card delinquency rate rose to 5.9 percent from 5.2 percent earlier this year. According to Citigroup Chief Financial Officer Mark Mason, these rates are expected to increase further before leveling off to “normal levels.”

Compared with Visa and Mastercard, American Express showed lower delinquency and charge-off rates. In fact, the second quarter delinquency figures for American Express stood at 1.10 percent,  compared to 1.40 percent in June 2019, before the pandemic created a new normal. Similarly, the company’s Q2 2023 charge-off rate was 1.55 percent, 40 basis points lower than June 2019 figures.

It’s interesting to note that Amex is working to expand its target market. They are offering checking accounts with a 0.5 percent annual percentage yield to attract younger cardholders, and over 60 percent of the new consumer accounts they’ve acquired globally this quarter were from membrs of that  demographic group. Moving forward, we may see American Express’s delinquency rates shoot up as young Americans in their 20s and 30s reportedly have the highest credit delinquency rates among all age groups.

Despite the increase in credit card usage and consumer spending, external factors may spell concern for credit card networks.

The Credit Card Competition Act was reintroduced last month in both the House and the Senate after not being brought up for a vote in either chamber during the previous session of Congress. Senator Dick Durbin, a key sponsor of the bill,  said at the time, “It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly.”

The proposed legislation, known colloquially as Durbin 2.0, is an anti-monopoly bill that enables  merchants to route credit card payments across a larger number of credit card networks. (We shared details on Durbin 2.0 in a previous blog.) If implemented, the two major card networks may be heading towards losses due to a bipartisan push toward clamping down on credit card fees.

While all three major credit card companies stand to gain from increased international travel and general spending using credit cards, increased transaction volumes will likely translate into more chargeback claims for merchants. This is especially true for industry verticals associated with credit card spending growth. After all, the more people use cards, the higher the chance of chargeback claims and friendly fraud. Therefore, merchants should prepare themselves for rising volumes of chargebacks and look for solutions that can scale with the change in volumes.  Signing up with a chargeback mitigation solution may be a good idea to safeguard interests while merchants focus more on growing their business.

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