Visa profits despite credit card losses
The credit card industry's in trouble, but card brand Visa (they don't make loans, they run the network) is riding high, thanks to a massive jump in debit-card use
The banks that dominate the credit card business -- JPMorgan Chase, Bank of America, Citi, American Express, Discover -- have cut back on new loans and boosted rates.
They're also under attack by Democrats in Congress and the Obama administration, who want limits on arbitrary rate hikes, as U.S. Rep. Paul Kanjorski, D-Pa., told me this morning.
So why are Visa's profits and its share price rising? While the banks that use Visa make (or lose) billions on borrowers' interest payments (or defaults), the San Francisco-based credit card network gets paid a cut of every card transaction -- credit or debit, charge or default.
And nowadays, most people who use Visa cards aren't borrowing money, notes Janney Montgomery Scott analyst Leonard DeProspo. "For the first time," he told me, citing Visa's quarterly earnings report from last night. "U.S. debit card usage was greater than credit card usage...
When it comes to making purchase, people are switching to electronic payment, and away from paper-based forms of payment like cash and checks." Also, "as conmsumers bump into credit limits, or as carrying debt with high interest rates become less desirable, they use credit cards less, and debit cards more, particularly for small everyday purchases." Visa's share price rose on higher profits today, though it's still below last year's highs. Rival MasterCard is expected to report tomorrow.