Profits rise for Visa, MasterCard

In a sign that credit card spending may be on the rise, Visa and MasterCard posted sharp profit increases for the first quarter of 2012.

Visa said its profit for the first quarter was up 30 percent over the same period last year. Its net income for the quarter was $1.3 billion or $1.60 per share -- above than the $1.51 figure Wall Street expected.

MasterCard reported a 21.2 percent increase in first-quarter profit, its highest quarterly jump in six years. Its revenue of $1.76 billion -- including a profit of $681 million -- also exceeded Wall Street's expectations.

Beating expectations

Visa and MasterCard don't earn money from credit card interest charges. Instead, they make money through the transaction fee incurred when people use their cards.

Analysts had predicted lower profits for both credit card processors. There were two reasons for investors to expect less-sterling results:

• The growth in debit card use has slowed. According to Visa, debit card use grew by only 4 percent, its slowest growth in a year.
• The Federal Reserve estimated in February that credit card charges had declined by $5 billion in the first two months of the year, even as consumer spending was growing by nearly 3 percent.

The card companies overcame these obstacles with help from international customers, who increased their credit card spending faster than their American counterparts. Visa reported that international transaction revenue grew by 17 percent.

What's slowing debit card growth?

The slowing growth in debit card use -- the 4 percent increase reported by Visa paled in comparison to its 12 percent increase in credit card use -- could be related to banks no longer encouraging debit card spending. In previous years, many banks offered reward programs for debit card holders, whose enthusiasm for debit cards increased profits for Visa and MasterCard. The two companies process most debit card transactions.

But things changed when the federal government capped the swipe fees banks can charge merchants for debit card transactions. The caps were expected to reduce bank income by about $20 billion a year, so many banks have stopped promoting debit cards and started encouraging more credit card use.

Card companies have bumped incentives to help steer consumers toward credit. Visa increased the amount it gives banks and other credit card issuers to promote its products and use its services. It's also increasing the minimum purchase amount that doesn't require a signature or personal identification number. That amount is $25 now, but it will go up to $50 in October.

The original article can be found at Money-Rates.com:Profits rise for Visa, MasterCard