- Major credit card companies pointed to a slowdown in international travel as a key reason for double digit drops in profits in the quarter.
- Visa, Mastercard and American Express cited border restrictions and slowdowns in cross-border payments, which tend to be more lucrative than domestic payments.
- "While we believe that cross-border will ultimately recover, it will take time for people to build their confidence in the safety of travel," says Mastercard's chief financial officer, Sachin Mehra. "We believe that is tied to the broad availability of vaccines and therapeutics, likely towards the latter part of next year."
Global travel screeched to a halt during the pandemic, and it's hurting credit card companies' bottom line.
American Express, Mastercard and Visa all reported double-digit drops in profit for the recent quarter, compared to a year ago. The companies pointed to a plunge in international travel as borders remain closed during the pandemic.
The companies earn a fee off of every transaction that runs on their network, while American Express also makes a significant portion of revenue from annual fees. A lack of cross-border payments is especially painful as those card swipes have higher margins, and end up being more lucrative.
Visa was the latest major card company to report results on Wednesday. Cross-border transactions fell 29%, while Visa's revenue in the quarter was down 17% from a year ago. The company did not give guidance based on uncertainty around the virus, but said the cross-border weakness remains a "significant and continued drag on revenue growth." That will likely continue into 2021, according to Visa's CFO Vasant Prabhu.
"The cross-border recovery has been sluggish since borders remain closed, and there are significant impediments of crossing borders like quarantines and other such restrictions," Prabhu said on a call with analysts Wednesday.
Prabhu cited "significant uncertainties" including the impact of spikes in Covid infections happening in the U.S. and Europe, the timing of reopening of borders, the impact of therapeutics and a vaccine, additional stimulus programs and the economic impact once stimulus programs end. Covid cases in Europe spurred leaders of Germany and France to announce new economic restrictions for the next month, while new cases in the U.S. have hit record highs in recent weeks.
Visa rival Mastercard reported earnings Wednesday, with many of the same themes. Mastercard's net income fell 28% year over year, and net revenue fell 14%, missing analysts' expectations. The company reported a 36% drop in cross-border volumes, and did not forecast a rebound in travel spending anytime soon.
"While we believe that cross-border will ultimately recover, it will take time for people to build their confidence in the safety of travel," Mastercard's chief financial officer, Sachin Mehra, said on a call with analysts Wednesday. "We believe that is tied to the broad availability of vaccines and therapeutics, likely towards the latter part of next year."
Shares of Mastercard have fared the worst in the past week, and are down 11% this week. Visa and American Express are down 8% and 10% this week, respectively.
Amex kicked off the card earnings on Friday with a 40% drop in profit from a year earlier. Travel and entertainment spending was down 69% year over year. While the company is "highly confident" that travel demand will return, "it will take a while," American Express CFO Jeffrey Campbell told CNBC in a phone interview.
"The human urge to travel is insatiable, but it will take some time to come back, just like it did after September 11th," said Campbell, who is also a former American Airlines chief financial officer. "For our company to be back at its pre-pandemic levels of earnings, we do need consumer travel to come back -- we're highly confident and in the meantime we're trying to take the right steps to rebuild growth and momentum."
Business travel, Campbell said, could take "years to come back."
Despite the travel-related slump, there were a few bright spots for the companies. Mastercard CEO Ajay Banga pointed to improvement in domestic travel in the quarter, including spending on lodging and sports. The card companies pointed to a rebound in domestic spending and an uptick in e-commerce that helped offset losses elsewhere. Payment volume for Visa rose 4%, while gross dollar volume, the dollar value of transactions processed, rose 1% at Mastercard.