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Americans using credit less, debit cards more
Lower credit lines factor, MasterCard's CFO says
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Published: August 1, 2008
NEW YORK - As Americans see their home values plunge, bills climb, and credit lines shrink, they are swiping their credit cards less and their debit cards more -- and Visa and MasterCard are still raking in the fees.
Debit-card use has been catching up to credit cards for years, but the weak economy has cemented debit as a major U.S. revenue driver for card processors. U.S. credit-card use hasn't dropped off, but it is growing at its most anemic pace yet compared to debit.
"Credit-card spending in general is much softer" in the United States, said Visa Inc.'s chief executive, Joe Saunders, in a conference call with analysts Wednesday. "It's not down, but it's marginally up, in the low single digits. Our debit-card spending, on the other hand, has continued to grow and is very robust."
MasterCard Inc.'s results revealed a similar trend. Within the United States, MasterCard's gross dollar volume on credit and charge cards inched up 0.7 percent during the second quarter -- slower than in previous quarters -- but gross dollar volume on debit cards soared 15.8 percent.
Some of the disparity is because of people switching from cash and checks to debit, but a good deal of the difference reflects a shift away from credit amid a flagging economy, executives and analysts say.
"The economic environment is pretty tough," the chief financial officer of MasterCard, Martina Hund-Mejean, said during a call with analysts yesterday. She said that consumers are continuing to shift their spending from discretionary items and more toward nondiscretionary such as gasoline, food and health care.
People tend to use debit for their everyday spending, and credit and charge cards for other items, Lehman Brothers analyst Bruce Harting wrote in a note earlier this week.
What's also appearing to dampen credit-card spending is the decision by such banks as JPMorgan Chase & Co. and Citigroup Inc., which issue MasterCard and Visa cards, to lower many cardholders' credit lines as defaults mount.
Visa's Saunders said that lowered credit lines did not contribute significantly to Visa's slowdown in U.S. credit-card spending growth, but MasterCard's Hund-Mejean cited it as a factor.
"We also do believe that the housing prices and the restrictions in credit for consumers have an impact on consumers utilizing their cards," Hund-Mejean said.
To be sure, credit-card spending still comprises a major portion of Visa and MasterCard's revenues. And credit-card use in the United States is still heavy compared to other types of borrowing, such as mortgages or auto loans. The Federal Reserve reported earlier this month that the 3.6 percent increase in May's total borrowing was mainly because of credit-card borrowing. However, many have attributed that month's jump to consumers' anticipation of stimulus checks from the government.
Visa's profit rose 41 percent in the April-to-June quarter to $422 million, or 51 cents a share, up from $299 million in the same period a year ago, before Visa went public.
MasterCard posted a $747 million loss for the second quarter after taking a $1 billion after-tax charge related to an antitrust settlement with American Express Co. But its results managed to surpass the expectations of analysts, who exclude one-time items from their forecasts. Disregarding the American Express settlement charge, MasterCard's profit rose to $276 million, or $2.11 a share, on a 25 percent jump in revenue.
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