American’s Less Usage of Credit Cards Worries Visa and MasterCard

It was observed this year that Americans were not using often their credit cards. This is bad news for both Visa and MasterCard. These two companies reported their quarterly earnings last Wednesday.

Master Card will report its results before the stock market opens while Visa will make its report after the stock market closes.

WHAT’S UP: One of the big factors that contribute to the economic growth is consumer spending. In fact, 70 percent of economic growth is due to consumer spending. From January to March, consumer spending rose by 2.9 percent- the highest growth in a period of a year. This is a good start for Visa and MasterCard which do the processing of credit card and debit card payments. But despite an increase in consumer spending, they charged less. In January and February, the charges went down to $5 billion, according to Federal Reserve.

The card companies are expecting overseas customers and rich cardholders in the increase of card use. Sales of jewelry and other trinkets are consistently high as recorded in retail shops like Saks Inc. and Tiffany & Co. The charges of American Express increased 12 percent more in the first three months as compared to last year on the same period.

The economic crisis is not yet over and consumers are not up to spend more and use their cards. In February the recorded credit card debt is $799 billion which is 15 percent lower than what was recorded in December 2007, the beginning of the Great Recession.

This trend worries Visa and MasterCard because they make money through the processing fees they are charging from card usage. They need consumers to use their cards more often to survive.

The companies could cover up loses in charges from credit card use through debit card usage. However, banks that issue debit cards to consumers are discouraging them to use their debit cards because of the regulations that limit the amount of fees which the banks can charge from the use of debit cards.

WHAT IS TO BE EXPECTED: According to analysts Visa expects to make earnings of $1.51 per share on revenue of $2.4 billion, while MasterCard will earn $5.29 per share on revenue of $1.79 billion.

LAST YEAR QUARTER’s FIGURE: Visa made $1.23 per share with recorded revenue of $2.24billion and MasterCard earned $4.29 per share on revenue of $1.5 billion.

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