What happened
On a pretty "up" day for the stock market in general, shares of credit card giant Visa (NYSE: V) were up even more than most -- up nearly three times as much as the S&P 500, in fact. By the time trading closed for the day, Visa stock had gained 4.3%.
You can thank The Wall Street Journal for that.
Image source: Getty Images.
So what
In a front-page article in the business and finance section of Thursday's paper, the Journal reported that "credit card applications hit [a] pandemic high" in October. But while that was the headline, the subhead to this story was even more amazing. As it turns out, "almost 27% of U.S. consumers said in October that they had applied for a credit card in the past 12 months."
One in 4 Americans just applied for a new credit card? Do you think that might be good news for Visa's business? Because I kind of think it might be.
Now what
It's worth pointing out that this good news for Visa might not necessarily be as good for all of the banks that Visa does business with. As the Journal points out, banks charge interest on balances that are carried month to month, but while consumers seem eager to shop with credit cards, multiple stimulus payments from the government have left them flush with cash so that they don't necessarily need to carry a balance these days (and pay interest on that balance).
Result: "Credit-card balances remain $123 billion lower than they were at the end of 2019."
That's actually kind of bad news for banks, which are bearing all the costs of extended credit, but not making all the profit they would like to, in the form of interest payments on credit card debt. It's not a problem for Visa, however, which gets to collect its 1.3% to 2.5% transaction fees on every sale made using its cards -- whether that sale ends up generating interest for the banks or not.
Simply put: More cards means more money for Visa, and that's why the stock went up today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Visa. The Motley Fool has a disclosure policy.
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