Payment Firms’ Stock Rout Hints At Consumer Spend Worries

The hopes may have been that consumer spending had been on the rebound, entrenched enough to stay positive, enough to save the holiday shopping season, and maybe beyond.

The pandemic may be enough to dash those hopes.

We’re still in the thick of earnings season, and trading on Wednesday (Oct. 28) hints at worries over consumer spending. Broader indices including the tech-heavy NASDAQ slumped more than 3 percent.

As for the consumer — well, the ripple effects of lockdowns in Europe may foreshadow what’s to come on these shores. With negative implications for payments stock.

Some of  those companies, like Mastercard, have already shown mixed results as the pandemic has pressured fundamentals, with no signs of letting up, at least near term.

As has been reported in news outlets including The New York Times, France and Germany are putting shutdowns in place (with France under national lockdown), while here, cities like Newark are also imposing limits on gatherings.

Broadly speaking, shutdowns hobble businesses (at least for the brick-and-mortar channel). Shutdowns may, of course, mean some of the backfilling on unemployment numbers will give way to a spike in unemployment rolls. None of that bodes well for consumer spending, and by extension, payments.

Payments-related stocks are down relatively harder than the markets, with Visa (which reports after the bell on Wednesday) down 4.7 percent into the close, and PayPal off more than 3 percent. Mastercard may be the tell here, with the company’s stock down a bit more than 7 percent on the day.

The stock may be down sharply on a significant slump in cross border volumes (down 36 percent in the latest period). But  commentary from the earnings call is likely hitting sentiment. There were pockets of positive trends, in contactless payments and debit spend, as noted in this space.

As Mastercard CEO Ajay Banga said on the earnings call, “We’re not out of the woods yet, as we are seeing in places like Europe restriction being put back in place. As we said in the past, progress through the phases may not be linear. It’s going to take some time. And it will be positively impacted by the broad availability of successful therapeutics and vaccines.”

Clearly the emergence of therapeutics and vaccines is off a ways, further than anyone would hope.

And for companies like Visa and Mastercard and others that have global reach, the cross-border trends evidenced by Mastercard may be especially daunting. Consider the fact that Mastercard CFO Sachin Mehra noted, “Personal travel for Mastercard represents a substantial portion of our total cross-border … as travel starts to come back, we’ll see personal travel, which is a substantial portion of our total cross-border come back sooner than business travel. And that should be tied to how we see the evolution of the COVID vaccine and the therapeutics taking place.”

Now with lockdowns stating to take root in region, that trend is likely pushed out.

The tech-driven trends that have been in place — toward tokenization, toward contactless payments, represent a fundamental shift, but top lines are driven by volume. And we have just gotten indications that volume may be in for a rough patch.