Thursday, July 31, 2008

U.S. Retail E-Commerce Growth Rates

RESTON, VA, July 31, 2008

comScore today released its Q2 2008 retail e-commerce data, which showed that while year-over-year growth rates rebounded slightly in April (up 15 percent) after a soft March, they slowed again in May (up 12 percent) and June (up 11 percent)

Nonetheless, total U.S. online retail sales (excluding travel) reached approximately $31 billion in Q2 2008. comScore CEO Magid Abraham and comScore Chairman Gian Fulgoni will discuss these data and other relevant e-commerce insights during the second installment of their quarterly webinar series, State of the U.S. Online Retail Economy, on Wednesday, August 6 at 3 p.m. ET (webinar details below).

Retail E-Commerce Growth Rates (Exclude Auctions, Autos and Large Corporate Purchases)
Total U.S. – Home/Work/University Locations - Source: comScore, Inc.
  • Month Yr        Change

  • Jun-07                   25%  

  • Jul-07                    22% 

  • Aug-07                   28% 

  • Sep-07                    19% 

  • Oct-07                    19% 

  • Nov-07                   20% 

  • Dec-07                   18%  

  • Jan-08                   12% 

  • Feb-08                   14% 

  • Mar-08                    9% 

  • Apr-08                   15% 

  • May-08                  12% 

  • Jun-08                   11% 

    “With the first round of the government’s economic stimulus checks having been mailed in early May, one would have hoped they would have bolstered online spending in May and June,” said comScore Chairman Gian Fulgoni. “However, recent comScore research reveals that fully two thirds of consumers said they had not planned to spend their stimulus checks and rather intended to use the cash to pay off debt or put the money into savings, a finding we’ll be taking a closer look at during next week’s webinar.

    In addition, it’s likely the impact of the stimulus may have been felt more offline, where a variety of merchants made it particularly easy for consumers to cash their checks at retail stores.”

To find out more about the webinar, visit
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Is There A Perfect Storm Brewing in the Credit Card Industry?

I have recently posted various blog entries regarding "congress investigating interchange fees", "the DOJ putting antitrust pressure on Visa", "the booming growth of debit"  as people either cut up or put away their credit cards, along with "Discover and AMEX's antitrust suits against V/MC".  There's a lot of turbulence in the air.

There seems to be a perfect storm brewing here. 

Interchange Fees are under attack for being too high, while at the same time, the "claimed" reason for the existence of Interchange Fees in the first place is to mitigate the risk if consumers don't pay. Interestingly enough, as I posted yesterday, more and more consumers are having a hard time paying their credit card bills. 

Seems to me that  during the next 3 years, the "credit card" industry will undergo drastic this "perfect storm" develops. This article from Laurie Kulikowski for "" paints a very interesting picture indeed.

The downturn in the economy and evidence of slowing consumer spending could put MasterCard and Visa in the hot seat.  The financial sector has dropped to lows not seen in two decades. But the payment processing firms, each fairly new to the public markets when compared with banks and brokerages, have been labeled as two bright spots, since they have largely avoided pain from the credit crisis and housing fallout.

However, as the economy deteriorates, some observers are getting nervous. They question whether the two companies' strategy of capitalizing on consumers' increasing reliance on plastic to pay for purchases will be able to withstand the consumer troubles in the U.S. and potentially abroad.

Investors in MasterCard and Visa will be listening to hear how the firms characterize the depth of the downturn in the U.S. and will be on the watch for any forward-looking comments on their businesses, observers say.

"This is the quarter when the resiliency of MasterCard's business model will be tested, as the various data points we monitor all tracked somewhat weaker/slower in the quarter," writes Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, in a research note where he trimmed his quarterly earnings estimates on the firm. "These include weak retail sales in the U.S. and slower growth in revolving debt, anecdotal signs of slowing volume growth internationally and a flat dollar versus major currencies.

Adil Moussa, a payments industry analyst at Aite Group, says he is more worried about Visa than about MasterCard because the San Francisco-based firm is more concentrated -- Visa Europe is a separate entity. This leaves Visa "more at risk" and "at the mercy of economic downturn" than MasterCard, he says

On the whole, analysts expect both MasterCard and Visa to post healthy second-quarter profits this week. Visa, which reports late Wednesday, is expected to post 48 cents a share in earnings. It made $314 million, or 39 cents a share in the first quarter -- the only quarter so far when the firm has reported earnings on a GAAP basis since it went public.

MasterCard, set to report Thursday, is expected to post earnings of $2.01 a share, according to average estimates compiled by Thomson Reuters. It recorded a profit of $253 million, or $1.85 a share, in the year-earlier quarter.

Visa's stock is up by roughly one-third since its first day of trading. MasterCard shares, which went public in May 2006, have risen more than fivefold, even as the financial sector has plummeted amid the credit crisis. Both companies, which issue cards to bank partners and collect a fee on each consumer transaction, are aggressively expanding globally as consumers and businesses shift from paper to electronic forms of payment.

The companies also do not extend credit to consumers. Credit delinquencies and defaults from lending to consumers have pressured earnings at two other card companies, American Express AXP and Discover Financial Services DFS, as well as several banks with large credit card market share.

But even these two bright spots of the financial sector have seen their stocks taken hits recently, as the financial sector remains volatile one year into the credit crisis. Investors are worried that the U.S. economic slowdown could expand internationally, hurting Visa's and MasterCard's growth plans. Visa shares are down 13% this month, while MasterCard's have fallen roughly 4%.

"There is obviously going to be pressure on volume growth, but we do feel there are other levers to them to offset pain," such as expense cutbacks, says Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods. He maintains outperform ratings on both stocks.

MasterCard derives roughly half of its revenue from its U.S. business, while about 59% of Visa's revenue comes from the U.S., Fox-Pitt's Shapiro estimates. He remains "comfortable" with his earnings estimates on Visa of 47 cents a share for the quarter, according to a separate note.

Last week, American Express posted second-quarter profit that fell nearly 40%, as even wealthy consumers have trouble paying their bills these days.  "The scope of the economic fallout was evident even among our longer term, superprime card members," Chairman and CEO Kenneth Chenault said in a company statement.

Discover Financial Services also recorded higher customer delinquencies when it reported earnings in June.

Several large banks, including Bank of America BAC, Washington Mutual WM and Citigroup C, also acknowledged that customers were increasingly having trouble paying their credit card bills because of the weak economy and rising unemployment.

BofA, which captures the largest market share of credit, debit and prepaid cards, said "managed" credit card losses of 5.96% represented "more than 60% of total consumer losses" during the second quarter.

"We've continued to see increased delinquencies in our card portfolio in those states most affected by the housing problems, while other states have actually shown some declines. California, Florida, Nevada and Arizona make up a little more than a quarter of our domestic consumer card book but represent about a third of the losses," CFO Joe Price said last week.

WaMu, which bought the subprime card company Providian in 2005, said it expects card charge-offs this year to rise to 10.5% of receivables, from 6.5% in 2007. Citi's "managed" net credit loss ratio jumped 202 basis points -- just over two percentage points -- to 6.53% in the quarter.

Higher credit costs reflected "the housing market downturn, higher fuel costs, rising unemployment trends and higher bankruptcy filings, as well as the continued acceleration in the rate at which delinquent customers advanced to write-off," it said on July 18.

To be sure, Visa is still consolidating its global businesses in the wake of a restructuring it completed in order to prepare for its March IPO. "As they standardize all their fee income structures, you could actually see an enhancement to the revenue yield," Sakhrani says. For MasterCard, "it's about maybe not reinvesting as much" by temporarily pulling back on certain growth initiatives, he adds.

Visa and MasterCard have each acknowledged the slowdown in consumer spending in the U.S. this year, but neither seems deterred regarding their growth forecasts as they look to expand globally with various products.

"There are more opportunities for us than threats," MasterCard CEO Robert Selander said in late May

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MasterCard and Visa Financial Results Released

MasterCard has reported financial results for the second quarter of 2008.

"MasterCard's worldwide purchase volume during the quarter rose 14.0% to $493 billion and its gross dollar volume increased 12.8% to $655 billion. Transactions processed grew 13.6% to 5.2 billion. MasterCard reported 951 million MasterCard cards issued, up 11%. Net revenue for the second quarter of 2008 was $1.2 billion, up 25.0%. Pricing changes contributed approximately 5 percentage points of the net revenue growth".

Click the links to view the webcast ...or to view the accompanying presentation.

Yesterday, Visa Inc. also released  it's third quarter financial results) stating that:  

"payments volume grew 19% to $652 billion and total volume, including cash, grew 22% to $1.0 trillion. Cards issued grew 14% worldwide to 1.6 billion and payments transaction volume grew 15% to 10.7 billion transactions. Total processed transactions were 9.5 billion, up 13%."

Click the links to view the webcast. or if you prefer, a presentation on the quarterly results can be viewed by clicking that link.

Senators Ask GAO to Investigate Interchange Fees

Jennifer Mullin (Harkin)  202-224-3254
John Gentzel (Snowe)   202-224-8667
Sue Walitsky (Cardin)   202-224-4524

Harkin, Snowe, Cardin Ask GAO to Investigate Interchange Fees

WASHINGTON D.C. – U.S. Senate Small Business and Entrepreneurship Committee Members Tom Harkin (D-Iowa), Olympia J. Snowe (R-Maine), and Benjamin L. Cardin (D-Maryland) today requested that the Government Accountability Office (GAO) investigate the structure of credit card interchange fees, which are used to reimburse credit card companies for processing transactions. While credit card companies contend that consumers and businesses receive great benefits from the current system, merchants are concerned that card issuers are pushing the cost of credit card incentives and rewards programs onto businesses and consumers through interchange fees. To examine both sides of the issue, the Senators asked GAO to take a balanced look at whether fees are properly disclosed, how the fees are set, and the level of competition in the marketplace.

“This multi-billion dollar fee is blamed for higher grocery prices and credited for subsidizing popular cash-back and rewards cards,” Senator Harkin said. “A GAO study will help us to gather unbiased information on these fees so that we can help the average consumers who are in the middle of this tug of war. I trust the GAO to honestly and comprehensively study this issue and advise us on a fair way forward.”

“While the credit card companies assert that they are helping consumers purchase goods and services, merchants, many of which are small businesses, say the interchange fees charged are too high, not set competitively, and eat into already slim profit margins,” said Senator Snowe, Ranking Member of the Senate Small Business and Entrepreneurship Committee. “To get to the bottom of this dispute, we’re asking GAO to look at the facts and assess whether credit card interchange fees are set in a transparent manner in accordance with market principles. I look forward to reviewing GAO’s recommendations to determine whether legislation is necessary to address this issue.”

“Interchange fees constitute significant surcharges which are passed on to Maryland businesses and consumers,” said Senator Cardin. “We need a balanced review to determine if merchants have appropriate bargaining power to negotiate fair and reasonable rates with companies like Visa and MasterCard, who control the majority of the market. Greater transparency, negotiation, and competition can only be of help to the credit and debit payment system.”

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