Visa and Mastercard announced a strong set of Q1 2023 results, with global net revenues at both schemes rising 11% to $8.0bn for Visa and $5.7bn for Mastercard. The networks highlighted continued growth in high-margin international transactions, with Visa’s international transactions up 19% in Q1, and Mastercard’s cross-border volume up 35%. However, the two companies have experienced contrasting performance in Europe, with Mastercard outperforming Visa, mainly due to the shift of Natwest’s volume, recently won from its arch rival.
Visa’s CEO, Ryan McInerney said “I have been at Visa for nearly a decade and I have never been more excited about the opportunities in front of us.”. Visa’s operational leverage saw net income rise 17% to $4.3bn. In contrast, Mastercard’s operating income was up just 6% to $3.1bn, mainly due to higher rebates paid to banks as it competes ferociously to put its logo on credit and debit cards.
Both Visa and Mastercard reported trading in Europe was ahead of expectations, with Vasant Prahu, Visa’s CFO, saying “Europe is strong, defying what we may have expected going into the year. If there is a positive surprise, it’s clearly Europe.” Michael Miebach, Mastercard’s CEO, said that not only were macro factors better than feared, but the secular trends from cash to cards in a number of key European markets were still moving strongly in its favour.
Mastercard had the better quarter in Europe, mainly due to the shift of Natwest’s volume. Mastercard’s European purchase payment volume rose 22% to $510bn. In constant currencies the increase was 31% leading Miebach to say “we feel very well positioned in Europe.”
The number of Mastercards issued in Europe was up 16% to 743m and, despite its imminent demise, the number of Maestro cards also rose slightly to 387m. Visa no longer publishes similar numbers for Europe.
Visa’s European volume grew just 3% to $540bn although excluding currency fluctuations and the UK, it also arrives at underlying volume growth of 31%. Total transactions were up 12% to 14.7bn with ATV falling 8% year on year to $36.8.
Stung by the loss of Natwest, Visa reports new portfolio wins in Germany (ADC, the country’s largest automobile association) and an additional 2.6m debit cards in Belgium.
Both companies remain focused on contactless payments, which is accelerating the shift to digital payments by replacing small cash-based purchases. Visa reports that contactless transactions account for 74% of all POS transactions outside the US, while Mastercard notes that over 100 of its markets have reached 50% contactless penetration. Although the US is catching up with a 10-percentage point increase in contactless transactions year-on-year, tap-to-pays still only accounts for 34% of POS transactions. Meanwhile, globally, contactless payment on mass transit is rapidly expanding, with Visa processing 745 million “tap-to-ride” transactions in the last two quarters, a 35% increase, and available on 650 transit systems.
The schemes discussed contrasting strategies to grow from their core of credit and debit processing.
Visa+, the newly announced, “network of networks” has attracted a great deal of interest. This product will allow users of P2P apps to send money to each other through a personalised payment address issued by Visa. Pilots with Venmo, Paypal and Western Union are expected soon but the product is for US domestic use only.
Visa management is also excited about Visa Direct. This product allows money to be sent to any Visa card but also via 66 ACH networks, 11 real-time payment networks, 16 card networks and 5 gateways to reach 7bn endpoints globally. Visa announced new deals in Latin America and the APAC but not in Europe.
Mastercard is promoting value added services to its existing banking and merchant customers. Worldwide VAS revenues were up 19% in Q1, largely driven by strong growth in cyber and intelligence solutions as well as “scaling of our identity and authentication solutions.” These are crowded markets but Mastercard’s management believes access to its unique data pool gives it differentiation.
Examples of VAS wins in Europe include MediaMarktSaturn, the large German electronics retailer, using Mastercard’s “test and learn capabilities to support the assessment and optimisation of new business initiatives.” There’s a good case study available which shows how Mastercard evaluated the impact of the retailer’s price-matching strategy.
Generative AI is this year’s hot topic. Visa’s McTiernay said: “We’ve got people all over the company that are tinkering and dreaming and thinking and doing testing and figuring out ways that we could use generative AI.” Miebach at Mastercard was more cautious. “We’ve encouraged our employees to experiment with the technology, but we set very clear guardrails. Don’t do it in production…. We will lean in, but make sure that we are a trusted party when it comes to scaling it up.”
Despite the reputational risk of association with crypto, Visa is maintaining investment. McInerney said “We see the potential for stable coins. … We’re enabling on and off ramps on crypto. We’re working with exchanges around the world to issue their users Visa credentials. And we’re developing the capability for our issuer and acquirer partners to have a choice to settle in stable coins.”