Global travel has been halted during the epidemic and is hitting credit card companies’ profits.
American Express, Mastercard and Visa all reported double-digit revenue declines in the recent quarter compared to a year ago. Both companies pointed out that international travel will plummet with borders closed during the pandemic.
The company receives commissions on all transactions run on the network, while American Express makes up a significant portion of its revenues with annual commissions. The lack of cross-border payments is particularly painful, as card swipes have higher margins and eventually more profitable.
Visa is the latest major card company to report results on Wednesday. Cross-border transactions fell 29%, while Visa’s quarterly sales fell 17% from a year ago. The company did not provide guidance based on uncertainty about the virus, but said the cross-border weakness was still “a significant and persistent problem for sales growth.” This will continue until 2021, according to Visa’s CFO Vasant Prabhu.
In a call with analysts on Wednesday, Prabhu said “there are significant barriers to crossing borders, crossing borders, and crossing borders with closed borders.”
Prabhu cited “significant uncertainties”, including the impact of the surge in Covid infections in the United States and Europe, when borders resumed, the impact of treatments and vaccines, additional stimulus programs and the economic impact after the end of the stimulus program. The European case of Covid Spending the leaders of Germany and France New cases in the United States hit an all-time high in recent weeks to announce new economic restrictions next month.
Visa’s rival Mastercard reported earnings on the same subject on Wednesday. MasterCard’s net profit fell 28% year-on-year, and net income fell 14%, falling below analyst expectations. The company reported a 36% decline in cross-border shipments and did not expect travel spending to rebound soon.
Sachin Mera, MasterCard’s chief financial officer, told analysts on Wednesday that “we believe it will ultimately recover across borders, but it will take time for people to build trust in the safety of their travels.” “We believe this is related to the widespread availability of vaccines and therapeutics by the end of next year.”
Mastercard’s stock hit its worst last week and fell 11% this week. This week Visa and American Express fell 8% and 10% respectively.
Amex started earning cards on Friday with a 40% decline in revenue from a year ago. Travel and entertainment spending was down 69% year over year. The company is “very confident” that travel demand will return, but “it will take time,” American Express CFO Jeffrey Campbell told CNBC in a telephone interview.
Campbell, who is also former American Airlines Chief Financial Officer (CFO), said: “The human desire for travel is unsatisfactory, but it will take time to come back, as after September 11th.” “It takes consumer travel for our company to return to its pre-epidemic level of profit. We are very confident and in the meantime we are trying to do the right thing to rebuild growth and momentum.”
Business trips, which account for about 6% of American Express sales, “will take years to return,” Campbell said.
Despite the travel-related sluggishness, the company has had a few bright spots. Mastercard CEO Ajay Banga noted improvements in quarterly domestic travel, including lodging and sports spending. Card companies pointed to a rebound in domestic spending and an increase in e-commerce that helped offset losses elsewhere. Visa’s payment volume increased by 4%, while the total dollar amount, the dollar value of transactions processed, increased by 1% on Mastercard.