Led by a Near Grounding of Travel Spending, Discover’s Volume Is Off 29% in April

Discover cardholders might not jet around the country like many American Express cardholders do, but it’s still telling that Discover’s travel spending volume has plunged 99% this month as governmental stay-at-home orders and business closures to control the Covid-19 pandemic chill the economy.

The near grounding of travel spending was the worst among various merchant categories Discover president and chief executive Roger C. Hochschild reviewed for analysts on the company’s first-quarter earnings conference call Thursday morning. What Discover calls everyday spending by its cardholders—purchases at gas stations, grocery stories, discount stores, drug stores and wholesale clubs—was off 14% year-over-year in the April 1-19 period. Gasoline sales volume slumped 60%, but grocery spending rose 16%. The other everyday categories together fell 10%.

Everyday spending accounted for 22% of Discover’s sales volume in 2019, with discretionary spending at 78%. Travel accounted for only 8%, so the near wipe-out in the first 19 days of April has less of an effect on Discover than it would on AmEx or issuers of high-end Visa and Mastercard cards. Reduced travel spending at Discover became evident in the first quarter, when it fell 20% year-over-year.

Meanwhile, Discover cardholders’ restaurant spending is off 60% this month, services are down 41%, retail is off 11%, and other discretionary spending is down 20%. In all, the discretionary categories are off a collective 33% from a year ago, which helped pull April’s total sales volume down by 29%.

“As long as stay-at-home orders remain in place, and many businesses remain closed, we expect the weak sales-volume trend to continue, and future trends will depend on the pace of the recovery,” Hochschild said on the call.

Besides its signature credit card, Riverwoods, Ill.-based Discover’s payments business includes the Pulse debit network and Diners Club International. Some partner financial institutions also issue cards on the Discover network. Pulse’s first-quarter volume rose 4% from a year earlier to $49.2 billion on incremental volume from new and existing card issuers and acquirers. Discover Network volume increased only 3% to $35.2 billion as spending began to slow down in the quarter, and Diner Club’s volume fell 7% to $7.7 billion. Volume through network partners jumped 23% thanks mostly to more spending on the AribaPay business-to-business operation.

Discount and interchange revenue rose 3% year-over-year to $694 million. Discover, however, gets the vast majority of its revenue as interest and non-interest income from lending through its credit cards and from student and personal loans. The company reported a $61 million first-quarter loss, compared with net income of $726 million a year earlier, largely because it added $998 million to its provision for credit losses.

On Thursday’s call Hochschild and chief financial officer John T. Greene extensively discussed their efforts to keep loan losses under control during the Covid-19 downturn. Greene said Discover’s model assumes “just over 9% unemployment levels at a peak, and then a very, very slow recovery in 2020” continuing into 2022.