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Both Visa and Mastercard top earnings forecasts despite COVID head winds

Visa and Mastercard recently reported quarterly results. Visa reported its fiscal third-quarter earnings and revenue expectations had been hit, but the COVID-19 crisis continues to drive mixed spending trends, with strong growth in e-commerce but sustained weakness in travel market.

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Both Visa and Mastercard top earnings forecasts despite COVID head winds

Visa posted net income for the quarter of $2.4 billion, or $1.07 a share, down from $3.1 billion, or $1.37 a share, in the year-prior quarter. Adjusted earnings came in at $1.06 a share, whereas analysts surveyed were expecting $1.03 a share. The company’s revenue fell to $4.84 billion from $5.84 billion.

Payment volume at dropped 10% in the latest period, though cross-border payment volume, or the value of transactions made between shoppers and merchants originating in different countries, dropped 37%. Visa said that cross-border volume fell 47% when excluding transactions between European countries, where international travel has snapped back more quickly.

In the US, Visa saw “steady improvement” in in-person spending during the June quarter, but that recovery stalled moving into July amid a more cautious approach to reopening the economy due to a spike in COVID-19 cases. Chief Financial Officer Vasant Prabhu said that the recovery in card-present volume, has been fairly similar among different states.

Wedbush analyst Moshe Katri says that the July trends reflected “20+ states reversing business reopening plans and the benefits of stimulus checks winding down,” though in his view the company’s overall e-commerce strength helped outweigh weaknesses in other areas, like travel spending.

The company has also seen US card-not-present volume increase by more than 25% each week since the beginning of April, which is two times the rate of growth from before the COVID-19 outbreak began.

Visa also added more than 80 million new contactless cards in the US in the first six months of 2020, with Chief Executive Al Kelly noting that a number of the company’s partner financial institutions sped up their plans for contactless issuance.

Visa expects tap payments to gain further momentum in the US due to a heightened awareness of germ spread, and Kelly said that once people begin to return to their offices, they may increasingly use contactless payment methods for food and drink purchases as well as public-transit fares.

Executives sounded confident that while the pandemic was pressuring some spending categories in the near-term, it was also accelerating the adoption of payment habits that could benefit Visa in the long run.

In the US, the number of Visa credentials involved in e-commerce purchases was up 12% in June relative to January, and trends were significantly more pronounced in countries like Argentina and Romania, where online shopping had been less prominent before the crisis.

Mastercard posted better-than-expected fourth quarter earnings, but noted a sharp decline in transaction volumes as consumer spending collapsed during the peak of the coronavirus pandemic.

Mastercard said adjusted profits for the three months ending in June were pegged at $1.4 billion, or $1.36 per share, down 28% from the same period last year but firmly ahead of the Wall Street consensus forecast of $1.16 per share. Group revenues, Mastercard said, fell 19% to $3.3 billion, just ahead of analysts’ estimates of $3.245 billion.

The group transactions fell 10% from last year on a gross dollar-volume basis, with purchase volumes down around 9%. Cross-border volumes fell 45%, on a local currency basis. Litigation provisions were pegged at $22 million, Mastercard said, while operating expenses fell 5% to $1.628 billion.

“Our platform uniquely positions us to support the shift to digital across consumer and business payments that has been accelerated by the COVID-19 pandemic, including an increase in consumers’ preference for contactless payments,” said CEO Ajay Banga.

“Further, our broad range of market-leading services—from insights and analytics to cybersecurity tools—means we are able to support our partners’ evolving needs in a rapidly changing world.

We continue to execute against our strategy and are excited to enhance and grow our open banking reach and capabilities, including through the planned acquisition of Finicity.”

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