The March 30, 2020 8-K filing by Visa indicates potential pain ahead for credit card issuers. The top global brand shows transaction volumes fell as consumers faced layoffs and shelter-at-home rules.
Credit volumes for March dropped 7%, though the quarter, but remains positive at 5% growth in the United States. Debit volumes decreased 1% in March, but remains up 8%. On a blended basis, there was a 1% decrease and a 9% gain.
The most significant drop was in cross-border transactions, where transactions excluding Europe fell 23% for the month and 3% for the quarter.
The filing indicates five operational risk factors:
Merchant, acquirer and issuer failures and credit settlement risk, particularly with respect to the retail, travel and hospitality industries, including airlines, cruise ships, hotels, restaurants and entertainment events;
Third party disruptions, including potential outages at network providers, call centers and other suppliers;
Increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity;
Challenges to the availability and reliability of our network due to changes to normal operations, including the possibility of one or more clusters of COVID-19 cases occurring at our data centers, affecting our employees, or affecting the systems or employees of our issuers, acquirers or merchants;
An increased volume of unanticipated client and regulatory requests for information and support, or additional regulatory requirements, which could require additional resources and costs to address, including, for example, government initiatives to reduce or eliminate payments costs.
Visa is a payment technology company and does not bear the credit risk that its franchise customers carry with their card portfolios, but is sensitive to volumes. The risks do suggest that some issuers will face headwinds.
The top three forward-looking statements illustrate sensitivity towards global events, regulators, and government mandates.
Impact of global economic, political, market, health and social events or conditions, including the impact of the coronavirus
Increased oversight and regulation of the global payments industry and our business
Impact of government-imposed restrictions on the international payment systems
While it is uncertain when the COVID-19 pandemic will peak, life as we know it continues to shift as people shelter and economies react. Visa is a critical component of payments both for its global positioning and its enabling technologies.
Credit risk for franchised banks might come from developing markets where central banks have tried to embrace populations with financial inclusion. The area to watch is small issuers, both domestic and global, that may not have the girth to weather the storm.
Perhaps this will be the next area of consolidation. Top issuers continue to drive the business, but 4,000 small issuers might find this an excellent time to consider their roles in the payment function.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
