Mastercard Results Detail Spending ‘Shift’ by Consumers Amid Inflation

It’s becoming a familiar theme — the U.S. consumer is resilient, and spending is buoyant and of course, the wild card is how long it will all last.

Payments giant Mastercard’s earnings results showed, similar to Visa and to the banks, that credit volumes have surged through the most recent quarter and even into the weeks thereafter.

As CEO Michael Miebach told analysts Thursday (July 28) in discussing  the second quarter, “the consumer and consumer spending patterns are very healthy.”

But there may be some headwinds. There’s a spending growth trend seen in higher income and lower income brackets, though in the latter demographic the growth trend is declining.

But overall, Miebach said on the conference call with analysts that despite inflation and rising interest rates via the Fed, unemployment rates remain low, wages are rising and consumer savings levels remain high.

“Consumer spending and particularly travel-related spending remains strong,” said Miebach. Spending is shifting a bit toward gas and groceries and away from discretionary categories like home furnishings.

Supplemental materials showed that worldwide gross dollar volumes surged by 14% to $2 trillion.

Card growth was 5%, to 2.9 billion cards out in the field.

Drilling down into the GDV, overall debit transactions were up by 2%, while overall credit spending was up 15% and overall cross-border volumes gained 58%.

“Cross border travel had another quarter of strong growth as border restrictions could continue to be lifted,” he said, and in the second quarter of 2022 was 118% of 2019 levels in the same quarter.

During the question and answer session with analysts, and with a focus on the recent news that legislation may be in the works on Capitol Hill that would impact card fees — and which would reportedly increase competition — he said asked, rhetorically, “how many providers have made the same kinds of investments to ensure that the consumer can rely on safety and protection?  That’s an open question.”

See also: Sen. Durbin Wants Another Bite at Card Interchange Fees

At the moment, said Miebach, consumer spending remains resilient and looking back on past recessionary environments, Mastercard is a notably different company.

A Diversified Business

“We have a highly diversified business,” said Miebach, moving well beyond credit and debit to include push payments and a range of services.  New payments flows, management said on the call, “are trending very well.”  Those new initiatives include cybersecurity efforts to protect smaller businesses.

Management also took note of the regulatory environment governing buy now pay later (BNPL), and increasing scrutiny from the Consumer Finance Protection Bureau (CFPB) on P2P transactions. Mastercard’s own installment offerings, said Miebach, ensure that participating lenders go through a detailed vetting process and that those entities follow responsible lending practices.

“We have learned to partner with P2P systems in many countries around the world with safety and security solutions … it’s an interesting and dynamic field that we are very focused on.”

Read also: Mastercard Turns to Quantum Computing to Tackle Loyalty’s Thorniest Challenges

And in details surrounding momentum after the quarter’s end, through July 21, month to date, switched volumes were up 18% and cross-border volumes gained 54%. Cross-border travel-related transactions across card present and card not present transactions were up 89%.

In comments that took note of the continuing great digital shift, Miebach noted that tap-on-phone initiatives have been gaining traction. There are now 130 deployments across 55 markets and Click to Pay is now enabled in 20 markets globally.

And in addition, noted Miebach, “our identity check payment authentication service is driving double digit improvements in approval rates.”

Open banking and digital identification initiatives continue to be key areas of investment and development, management said.

Mastercard, said Miebach, has a “relevant position in connectivity and then building out a bunch of use cases,” with a particular focus on application programming interfaces (APIs). Those APIs can be useful in mortgage applications, asset verification and other use cases.  Open banking, he said, offers “tremendous potential” by giving Mastercard access to “an alternative network — and it’s a data network.”

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