Visa reports record commercial card volume as interchange threats mount

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Global card giant Visa saw a quarterly increase of 15% in commercial billed payments while its rival, American Express recorded a 5.2% jump.

by Manpreet Singh

Published: 15 December 2021

Interchange revenues are roaring back to life for the card giants, even as global business travel remains subdued. But with Amazon’s shock decision to start refusing Visa credit cards in its UK business in January, the card business model is facing a new threat.

Visa in its September end SEC filing reported a record $306 billion in commercial payments volume for the quarter ended 30 June, amounting to a 42% year-on-year jump and 15% growth from the previous quarter.

Its smaller rival American Express recorded a growth of 28% from Q3 2020 and 5% from Q2 2021 to $126 billion in proprietary billed volume. The data were disclosed by American Express, Visa and Mastercard release their latest SEC filings for the third quarter of 2021.

The card giants earn income from interchange fees, which are paid by merchants who accept card payments from customers. These fees can be as much as 2% of transaction amounts, and are split between card issuers, card network providers and fintechs that increasingly play a part in the card payments food chain.

Large retailers are increasingly questioning the need for such high fees, arguing that they breach anti-trust or competition law. The card giants have suffered adverse court judgments in a number of jurisdictions. Retailers are now looking to replicate the economic function of cards with alternatives such as buy-now-pay-later (BNPL) services.

Addressing concerns over the recovery of payments, the CEO of Mastercard, Michael Miebach in the earnings call noted that the company is “seeing continued strength in domestic spending and overall cross-border volumes are now back at 2019 levels” while also pointing out the fact that “there still remains significant room for growth in cross-border travel”.

Mastercard does not break out its commercial card volume but the company reported a rise of 4.6% in Gross Dollar Value from Q2 2021 to Q3 2021 at $1,993 billion while in the case of cross-border volume fees it was a rise of 18.5% to $1,276 million in the same period.

Pointing towards travel, Mastercard’s CEO said that the company is seeing a ‘general trend toward the opening of travel corridors, notably inbound into the U.S. and some easing of restrictions in Asia’ while also maintaining that there is a “substantial upside potential still remaining as and when borders open”.

On the other hand, American Express noted in the investors presentation that its T&E segment is still 29% down as compared to Q3 2019.

Speaking on the Travel and Expense segment, Chief Financial Officer at American Express, Jeff Campbell noted, “Overall spending is only weaker outside the U.S. because, historically, we have more travel-related spending in our international regions and international T&E is recovering more slowly than in the U.S. given cross-border travel restrictions” but also pointed out that base on the current trends in the markets, the company’s “overall T&E spending globally will recover to around 80% of 2019 levels in the fourth quarter of 2021.”

While on the global commercial billed businesses, AmEx’s SME segment showed an 11% growth in Q3 2021 as compared to pre-pandemic levels while the Large and Global Corporate segment struggled to show positive momentum and registered a negative 43% growth in the same period.

CFO Campbell on business segment growth noted that “global SME spending, which represents the bulk of our commercial billed business, remains the most resilient across all of our customer types” while further commenting on Large and Global Corporate segment said, L&G card spending, which historically has been primarily for travel and entertainment, continued to show fewer signs of recovery”.

Visa’s Vice Chairman and Chief Financial Officer, Vasant Prabhu, in the earnings call noted that the company posted better than expected results in the period July to September due to multiple factors but ‘higher cross-border volumes from a faster-than-anticipated recovery in travel’.

While also cautioning that “cross-border travel is recovering well but still well below pre-COVID levels with a pace of recovery dependent on cross-border on border openings. Asia has not reopened to the degree the rest of the world has.”

In silver lining, CFO Vasant Prabhu observed that its value-added services have added “differentiation and create more value for our clients than alternative networks can” and also assumed “that the recovery trajectory underway in payments volume and processed transactions stay intact through fiscal year ’22”.

But the biggest jolt to the card giant Visa was given by the global online shopping giant, Amazon when in a surprise move, it announced that it will no longer accept Visa Credit Cards from 19th January 2022.

In Q3 2021, Visa announced that it would acquire UK-based cross-border commercial payments firm Currencycloud valuing the company at £700 million, inclusive of cash and retention incentives. While on the partnership front, the company partnered with a number of other fintechs such as Nium and Fuiou Pay for a global business payment solution, Lloyds Bank for upgrading their payment process for businesses and Citi and PayMate to automate payables in the Middle-East region. In cross-border payments, it signed an MoU with AMF and teamed up with IATA for streamlining of commerce and payout processes.

For Mastercard, the Reserve Bank of India, the country’s central bank took supervisory action which imposed restrictions on Mastercard from onboarding new domestic customers onto its card network from July 22, 2021. In terms of partnerships, the company signed up Eedenbull, Barclay Payments and Penny Software for its Mastercard Track Business Payment Service. The company also announced that its long-serving ex CEO and Executive Chairman, Ajay Banga would be retiring from the company by the end of 2021.

On the acquisition front in travel space, American Express Global Business Travel acquired Egencia, which is Expedia Group’s corporate travel arm and the company also announced the collaboration with Goldman Sachs for corporate payments.