Visa & Mastercard ,, will profits go up or down?
Will profits go down because consumers spend less due to a global slow down or will profits go up because consumers have less cash available and they will charge more?
Answers
130 points
HeyJuan answered one year ago …
As spending slows down, so will the profits of credit card companies.
If consumers start charging more than necessary there will be more write-offs.
Either way, not good for the bottom line.
108 points
NeverEverLand answered one year ago …
Since credit has dried up, except for the most credit worthly, many people will not be able to get a credit card, they will have their credit limits lowered and some people may not pay at all (if it comes to putting food on the table or paying a credit card bill). Personally, this is not an area that I would be a long term investor in, for the next few years. Let the credit problems work themselves out and then it will be a good place to invest, since credit card companies will only give credit to those that are worthly and responsible. I don't see this area getting better for at least a few years.
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alanj answered one year ago …
They are headed down. I recently read that about 25% of mortgages are in default. For the people that are having trouble paying their mortgages, who do you think they are going to pay first? Their mortgage or their credit card? Of course their mortgage. That means a number of credit card bills are going to go unpaid. Not good for the credit card companies.
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251 points
MichaelShulman answered one year ago …
The consumer is clearly tapped out. They are increasingly losing the fight to inflation, unemployment and falling housing prices, which is the real epicenter of the slowdown in consumer spending.
Credit card usage grew explosively in 2008 but it's been to pay for basics -- i.e., gasoline, food, medicines. If people don't have the cash to pay for necessities, it's a good bet they don't have the cash to make lump-sum credit card payments when the bill arrives. A tapped-out consumer means fewer transactions and slower overall growth in transactions in 2009.
The use of credit cards is already showing signs of tailing off -- and next year a big shoe drops. According to my favorite Wall Street analyst -- Meredith Whitney of Oppenheimer (OPY), the great forecaster of all the troubles in the financial sector -- new regulations on how a consumer's credit worthiness is evaluated could lead to a pullback in credit lines by more than $2 trillion out of the current unused credit lines of $4.7 trillion. This, too, means fewer transactions.
On top of this is the growing number of people experiencing foreclosure and/or bankruptcy. In past years, they could find credit cards, at a high interest rate, somewhere after a bankruptcy or foreclosure. That is the case less frequently. Again, fewer cardholders means fewer transactions, which means fewer transaction fees for Visa and MasterCard.
Even with Visa's dominance in the debit-card business (for which it collects transaction fees every time a card is swiped), the volume is much smaller in comparison to credit-card transactions. This simply isn't enough to prop up the stock.
The bottom line: Visa and MasterCard (MA) are facing several years of hard-going.
