Visa Inc and MasterCard Inc, the world's largest credit card networks, are counting on foreign markets for the growth that recession-bound US consumers have been unable to provide. Overseas markets have contributed to the bottom line at both Visa and MasterCard with double digit revenue growth rates in recent years, helped by a shift among consumers worldwide to using plastic where they once used cash and checks.
But foreign markets became truly crucial last year - sustaining the revenue and earnings of both firms, despite a steep decline in credit card use in the United States - still by far the largest market for both companies.
In comparison, emerging countries from Mexico to South Korea - and even economies such as Japan and Germany that are developed, but are underpenetrated by credit and debit cards - could become the engines of growth ahead.
“In Russia, in Brazil, in the United Arab Emirates, in Taiwan, even in China and Japan, while we see some good activity or strong activity, it's potentially much stronger when those economies start to do better,” Visa's Chief Executive Joseph Saunders said in an interview.
“We are very entrenched in every one of those places and we are looking to get a lot more of attraction.”
Visa's operating revenue from abroad increased to 44% in the second quarter from 40% a year ago and could rise to 50% in the next three to five years, Saunders said.
MasterCard's chief executive Robert Selander said in an interview with Reuters earlier this year that the company was considering increasing investments in emerging markets despite the global financial crisis.
Foreign markets represented 55% of MasterCard' purchase volume in the second quarter, up from 50% in 2007. Analysts estimated those countries could represent 60% of the company's annual purchase volume of $2 billion in five years.
Visa and MasterCard are partially insulated from the credit crisis because they process transactions rather than lend funds. However, both companies have seen a slowdown in activity as US consumers use credit cards less.
In the first three months of 2009, Visa's payment volume grew 2%, boosted by a 10% increase in the Asia Pacific region and a 15% jump in Latin America.
In the second quarter, MasterCard's purchase volume declined, hurt by a steep contraction in the use of credit cards in the United States. But the Asia Pacific region grew 16% and Latin America 11%.
Foreign markets have helped both companies stick to earnings targets. Visa has said its adjusted EPS will grow over 20%, while MasterCard expects net income growth of at least 20% in 2009. (Reuters)