) may want to pay special thanks to affluent consumers for
spending more on their credit cards when the card giant reports
its June-ended quarter late Wednesday.
U.S. credit card spending has been one of Visa's bright spots
the last several quarters. And its most recent quarter, its third
fiscal, may get an even bigger lift, analysts say.
As evidence, they point to higher spending on credit cards
issued by Visa's biggest U.S. bank partners, such asJPMorgan
),Bank of America (
) andCapital One Financial (
"Visa dominates U.S. consumer credit card payment volume.
Strength in U.S. credit payment volume will likely be the biggest
driver of earnings outperformance in the June quarter," said
Evercore Partners analyst David Togut.
Like its smaller rivalMasterCard (
), Visa makes money from servicing fees and processing cards for
card issuers. It's highly dependent on card volumes to fuel
revenue and profit growth.
Visa has the largest share of the U.S. credit-card processing
market by far "and with the most successful card issuers in the
U.S.," says Togut.
Purchase volume at JPMorgan Chase, Visa's No. 1 credit card
issuer, jumped 9.6% in the June quarter vs. the quarter ended in
March, for example. BofA's rose more than 5%. Capital One's
Togut expects earnings to come in above consensus. However,
some analysts note that service fees may be pressured given
Visa's pricing concession to JPMorgan in February as it forged a
new 10-year contract with its big card partner.
That may contribute to slower profit growth in the June-ended
quarter since service revenue is recognized a quarter later. In
the March-ended quarter, service revenue grew 10% vs. a year
earlier to $1.4 billion.
Analysts surveyed by Thomson Reuters forecast Visa's earnings
in the June quarter, its third-fiscal quarter, will rise 15% on
average over last year to $1.80 a share. If Visa meets views, it
would be the slowest pace of earnings growth in several
Nomura analyst Bill Carcache also thinks Visa will beat views,
due to "higher revenue," he wrote in a research note Monday.
Visa's revenue is seen rising 13% to $2.9 billion, according
to the Thomson Reuters poll. Carcache's revenue estimate is above
consensus, given his expectations for lower incentives and high
data processing and international transaction fees.
Since processing costs are largely fixed, processors can
leverage volume growth to push margins and profits incrementally
"The U.S. macro data we've seen this quarter points to
mid-single to low-double-digit volume growth for Visa," Carcache
wrote, "better than the prior quarter."
He expects MasterCard, which reports next week, to post
MasterCard's biggest card issuer in the U.S.,Citigroup (C),
has been hobbled by weak volume growth. Citigroup's improved 2.7%
in the second quarter from zero growth in the first quarter,
On the U.S. debit-card front, where Visa has long been the
leader, losses to MasterCard in the wake of financial-reform
legislation are largely past.
As part of new regulations that took effect in April of 2012
prohibiting network exclusivity, banks were required to provide
merchants with more than one card network to route transactions.
It was Visa's business to lose.
"Impacts of the Durbin regulations are starting to
anniversary," said analyst Gil Luria of Wedbush Securities.
"Visa's debit growth rates are now recovering in the U.S."
Even so, credit will likely outshine debit in the U.S., driven
by what Carcache calls "resilience in affluent spend(ing)."
Credit card spending increased 7.2%, 7.5% and 8.8% in April, May
and June, respectively.
Carcache notes that pin-debit spending in those months rose
0.7%, 2.4% and 4.4%, respectively, for an average growth rate of
2.5% vs. 2.3% in the previous quarter. Signature-debit spending
volumes rose 6.3% on average vs. 3.8% in the prior quarter.
Growth on the international front has been fueled mostly by
emerging markets, where consumers continue to shift from cash to
That secular shift will fuel high teens to low 20s percent
earnings growth through fiscal 2015, Togut notes.
He says the regions including Central and Eastern Europe, the
Middle East and Africa will probably continue to be the
fastest-growing, followed by Latin America.
Most of China's domestic business is handled by China
UnionPay, the dominant bank-card payment processor in China.
China UnionPay is trying to get more cross-border volume when
its citizens travel outside the country, cutting into Visa's
share of cross-border volume from Chinese travelers.
China aside, Visa aims to grow its share in domestic
processing around the world. Carcache says Visa is growing
domestic processing share in many large markets.
In Brazil, for example, domestic processing market share has
gone from 53% in 2008 to 81% in 2013.
Japan and South Africa have "significant runway" with just 25%
and 52% share, respectively, he notes, up from 15% and 21% in
Luria said that international "is still going well," but with
little change over the last few quarters.
"Growth has been fairly steady, no big change there," he
Since Visa Europe is still a separate operating unit, Visa
isn't impacted as much as MasterCard by European Union spending
and regulatory issues.
Visa is close to reaching its goal of raising international
revenue to at least 50% of its total. MasterCard has long
generated more revenue overseas.