Seems as though everything coming out of the financial industry has a “but”: “Earnings are up, but …” or “It was a setback, but…”. News coming out of the Visa camp is no different. Its quarterly profits surpassed expectations, but consumer spending may be dropping in coming months. MasterCard had similar news as well. Here’s how both Visa and MasterCard look after their respective profits announcements this week.
The world’s top credit card network’s impressive quarterly profit report was due to consumer spending, which some are saying is temporary – both on the national and global levels. Americans spent $255 billion this past quarter and it’s indicative of an impressive 9 percent jump from this time last year. Its debit card purchases, however, didn’t budge and are still flat. Also, the transactions processed through the Visa network increased 6 percent, for a total of nearly $14 billion. Three percent is accredited to spending here in the U.S. and a whopping 21 percent for global transactions.
Using a new business model, Visa raised its fiscal earnings growth several points. The company said the shift is more in line with the economic outlook, even as some analysts are cautioning against putting too much faith in that. It’s too early, they say.
Interestingly enough, MasterCard reported satisfactory earnings, but it is turning its attention to developing countries in order to take them from a cash society to a debit card society. As a result, its growth here in the states eases and it too is warning of a less than ideal outlook. But considering MasterCard’s announcement that it had signed a memorandum of understanding with China’s Alibaba Group, Asia’s largest e-commerce company, to offer epayment services to potentially 800 million Alibaba customers, it’s easy to understand why a change in focus was decided.
Still, MasterCard also cites weaker reports from its issuers. According to Reuters, annual growth in MasterCard’s U.S. purchase volumes slowed to 4.6 percent from 7.1 percent from the previous quarter. Visa’s annual growth edged up to 4.1 percent from 3.0 percent. These numbers show the contrast between the two credit card giants.
MasterCard’s CEO Ajay Banga met with the media via a post earnings conference call on Tuesday.
In the U.S., the second quarter right now looks a little bit dodgy, but there could be some upside going into the second half of 2013 as far as U.S. economic growth is concerned,
Just because MasterCard is looking for ways to serve the needs of other countries doesn’t mean it’s not continuing its annual programs and charity dives. The traditional cancer drives have continued, including the partnership with the national baseball program. Each year, it presents millions to cancer research. Last year, its campaign was ‘Dine and be Generous”. It typically pays a penny per contribution to various causes.
Another consideration has to do with payments processing for mobile devices. Visa’s doing much better and at a quicker pace, even as both target those consumers who shop online or via their smartphones and tablets. Visa’s wasting no time. It’s only been a few weeks since it announced its new partnership with ROAM, a mobile commerce provider. This will enable merchants – even the small businesses – to accept electronic payments with the most current mobile technology. MasterCard hasn’t put those dynamics in place to the extent its counterpart has.
Adding to Visa’s brighter outlook is a new agreement between it and Samsung. While the details aren’t out yet, it’s likely to have something to do with the anticipation behind the Galaxy S IV, which is slated to be unveiled later this month. It will allow banks that are already in on the mobile payment program to incorporate the Visa payWave as the method of downloading payment information to the NFC enabled Samsung phones. While it sounds complicated and technical, the fact is, consumers who own these particular devices (and eventually other devices) to load their credit card information and then make their purchases simply by tapping their phones on a specially designed pad that will be in retailers and other brick and mortar companies. It’s designed to be convenient and fast – and the safety mechanisms that are built in should put consumers at ease.
Both Visa and MasterCard – as well as the other credit card networks – haven’t shied away from the fact that they’re concerned about the rapidly changing technology. Digital wallets are still in their infancy and already, they’ve undergone big changes, each one better than the one before. They also offer an anonymity that’s rare in all things financial and security related.
There’s always a wild card at place in finance. Currently, both card networks continue to struggle with the ongoing lawsuit surrounding swipe fees. It’s turned into a gruesome battle that no one wins – including the consumer. What ultimately happens will determine a lot in how both move forward. Under the settlement passed a few years ago, both – along with several other banks – agreed to shell out $6 billion to merchants. The card networks also agreed to temporarily reduce swipe fees, or interchange fees, on credit card transactions and allow merchants to skip the surcharges for those who pay customers who pay with cash.
For now, both networks continue to introduce new credit card offers for millions of consumers, each one with its own exclusive perks and benefits package. With the economy showing signs of some improvement, it could mean one of two things: consumers continue to play a role in the positive profits or they continue to sock away their money in an effort to offset the repercussions if the economy worsens again.
So which card network do you prefer – Visa or MasterCard? Or are you like millions of other consumers who really aren’t focused on the issuer, but rather, the promotions and charitable efforts? Let us know your thoughts. Share your story with us on Facebook or join the conversation in our comments section.
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