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Boom in Spending Via Plastic Money Puts Payment Stocks in View

Zacks Equity Research

Gradual easing of shelter-in-place restrictions, which were imposed on many countries to counter the spread of the deadly coronavirus, is seeing a rebound in consumer spending. However, since consumers are still shying away from venturing out and making physical purchases, online spending and card payments witness growth.

Per recent data, an improvement in card (debit and credit) metric trends bodes well for companies in the payments space.

Recovery in Spending

According to data from PSCU, the nation’s premier payments credit union service organization, consumer spending and shopping trends bettered with the relaxation of shutdown rules in phases.

For the week ended May 17, 2020, overall credit card spend was down 16% year over year while overall debit card spend was up 9.2% year over year. For credit, it was the fifth consecutive week of strengthening results. For debit, it is the fifth consecutive week of year-over-year growth.

The average debit card purchase amount continues to be strong and for the week, it is up 17% year over year.

The positive trend continued in the consumer good which saw a 35.7% increase on debit card spend and a 9.4% increase on credit card spend for the week ending May 17.

Also, card not present, (CNP) in credit transaction mix expanded to 50-60% during the first three weeks of May from the pre-COVID-19 level of 35% level. (Making a purchase without being physically present is called a card-not-present (CNP) transaction).

Debit CNP transactions accounted for 33.3% of overall debit transactions and debit CNP purchases accounted for 45.5% of the total spend, up significantly from 20.1% and 33.3%, respectively, year over year.

These above-mention trends are being  driven by the  continued distribution of Economic Impact Payments (EIP) and the loosening of shelter-in-place constraints across a number of states.

The Treasury-sponsored EIP Card is a method to provide money efficiently and securely to eligible recipients and their families. The EIP Card contains the money received by Americans as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The EIP Card is sponsored by the Treasury Department’s Bureau of the Fiscal Service as part of the US Debit Card Program.

More than 140 million of Economic Impact Payments worth $239 billion has been delivered to Americans by direct deposits to accounts at financial institutions, Direct Express card accounts and also through checks. These EIP cards can be used for shopping in places where Visa Debit Cards are accepted: in-store, online or over the phone including bill payments.
Reopening of International Markets

International markets are in various stages of reopening and recovery. Visa reported that recovery in the international markets in which the company carries out the majority of transactions lagged the United States in May. Across most parts of Europe as well as Australia, Canada and Japan, the spending trends are comparable to those in the United States. India and Singapore are also slowly resuming business activities. A few markets, such as New Zealand, Denmark and Chile witness year-over-year constant dollar growth in May.

Ergo global processed transactions are showing a marked improvement, boosting cross-border revenues, one of the key revenue components of payment companies, as most of these players have vast international exposure.

Growth in Diverse Spheres

Spending levels were varied across different categories.  Segments of food, drugstores, home improvement, retail services, automotive retail goods, and telecom and utilities saw a spurt in spending. 

Meanwhile, spending in business supplies, department stores, education, government healthcare, restaurant and QSR, entertainment fuel and travel remained dull.

Going by the PSCU data, grocery stores/supermarkets continue to show favorable year-over-year spending behaviors. The week ending May 17 finished at an increased rate of 15.9% year over year for credit and 16.6% growth for debit.  Though debit card spend remained elevated above typical growth levels, it moderated from the level seen in in March when people spent more on stockpiling essentials to brace up for the rampant COVID-19 outbreak. However, spending in restaurant/dining sector was down 48.9% for credit cards and 22.3% for debit cards as cautious Americans stayed away from dining out.

Contactless Purchases to Attain Permanency

The shift to online, cards, mobile mode of payments gained momentum in recent years due to the rapid percolation of technology, which facilitates the task of making payments at the click of a button.

Moreover, the recent pandemic crisis bridged the gap between the netizens and those not so tech-savvy. Even traditional buyers are promptly resorting to online platforms for shopping to their hearts’ content. Given the ease, flexibility and security provided, these cashless mode of payments are here to stay and catch the collective consciousness even in the post COVID-19 environment.

The COVID-19 chaos steadily drove global e-commerce sales in April with the general retail sector recording a staggering 209% growth compared to the same period last year, per an ACI Worldwide analysis of myriads of e-commerce transactions from global online retailers. Also, as the world moves to a cashless society, e-Commerce payments stand on the verge of an irrevocable change.

Over the past three months, the Zacks Financial Transaction Services industry has lost 1.4% compared with the Zacks composite S&P 500’s decline of 1.6%.

Below we focus on three stocks that are poised to gain from the expansion in digital/card payments:

Visa Inc. V is poised to cash in on the growing payments space, given its vast international reach, superior brand value, solid capital position and heavy investments in technology. The company recently reported monthly payments, processed transactions and cross-border volumes for May, reflecting a gradual betterment in card metrics trends.

The stock currently carries a Zacks Rank #3 (Hold) and its earnings surpassed estimates in three of the last four quarters and met estimates in one, the average positive surprise being 2.19%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mastercard Inc. MA is experiencing a revival in business volumes, driven by normalization in some markets, attributable to gradual reopening of businesses. The company’s switched volume and switched transactions are showing an enhanced trend, partly backed by the easing of social-distancing measures in several markets and the positive impact drawn from the fiscal stimulus offered in the United States. Mastercard is also witnessing buoyant demand for its Data & Analytics and Cyber solutions. In the second quarter of 2020, the company expects services growth that provides diversification to its revenue stream to continue outperforming its core products.

The stock currently has a Zacks Rank of 3 and its bottom line beat estimates in each of the trailing four quarters, the average being 5.51%.

American Express Co. AXP is another major company in the card space, which is poised to benefit as spending catches everyone’s fancy yet again. Its cards used for flight ticket booking and providing premium lounge facilities are expected to gain traction once the travel spending observes a boom.

The stock is currently Zacks #3 Ranked and its earnings topped estimates in all the trailing four quarters, the average positive surprise being 5.03%.
 

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