Card Spending is Up, and Visa is Reaping the Profits
Apr 28th, 2010 @ 9:07 PM by Amber Nelson
The numbers for the fiscal second quarter are in and the verdict is: people are spending more money on their cards. This is good news for the global economy and great news for the world’s largest payment network Visa Inc.
Visa’s Chief Financial Officer Byron Pollitt told reporters on a conference call that spending on debit or credit cards increased 15 percent in the first three weeks of the second quarter compared with one year earlier. An article on BusinessWeek’s website quotes him as saying debit card purchases jumped up by 22 percent and credit card transactions rose by 7 percent, the first increase since 2008. Why are the numbers up? “The world is traveling again,” Pollitt said. The latest quarter also takes into account all the purchases made on Visa cards during the Winter Olympics.
Visa itself saw profits gain by 33 percent, with a net income of $713 million, up from $536 million during the same time last year.
Keep in mind that San Francisco-based Visa and competitor MasterCard are not banks and do not actually lend money. They make their money from fees charged when customers use their cards to make purchases. Obviously the more people spend, the more money they make in fees. So even though they didn’t suffer massive losses like the banks in the financial crisis, they saw decreased revenues as consumers pulled back on spending.
The gains made in the second quarter are helping Visa to feel the rays of recovery breaking through the clouds of recession.
Visa “is increasingly optimistic that the worst of the recession is behind us,” Joseph Saunders, its chief executive, said on a conference call as quoted in a recent Reuters article.
“We remain watchful of the longer term sustainability of growth in the world economy,” he said. He qualified his optimism though with: “I’m not betting on a continued recovery that just goes through the roof.”
Still increased consumer spending leads to growth in the national GDP, a sure sign of economic healing, and even if the optimism is cautious, its still better than more financial rain clouds.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.