Analysts: Processors Must Seek Growth in Non-Credit Card Markets

With credit card growth sputtering, an expanding debit card market will help lift transaction processors' volumes for the foreseeable future, according to new research from Goldman Sachs & Co. The investment bank also predicts processors will find robust growth markets in nascent channels like mobile payments and established debit-related markets like prepaid cards. All in all, Goldman analysts expect growth from sources other than credit cards to propel electronic payments to 42.3% of worldwide personal consumption expenditures in 2012, up from 35% this year. “We've heard from our contacts that the biggest demand is in non-credit card products, and this has been the case for the past 12 months or so,” said John Williams, a Goldman analyst who participated in a conference call about the research on Monday. The credit crunch, coupled with restrictive legislation, is seen as hampering the processing market in credit cards for some time to come, at least in the U.S. “We expect U.S. credit card issuance will remain further inhibited,” said Julio C. Quinteros, vice president for global investment research, during the call. Indeed, Goldman projects that U.S. credit card volume will fall to $1.225 trillion this year, down 11% from 2008's $1.372 trillion. A further decline, to $1.211 trillion, is forecast for next year. Reinforcing these trends in credit card transactions were quarterly results released on Tuesday by Visa Inc., which reported a 9.6% drop in U.S. credit card volume on a 2.4% fall in transactions for the quarter ended June 30 (Digital Transactions News, Oct. 27). Debit, on the other hand, is seen as a growth engine, offsetting in part the slump in credit. U.S. debit volume will hit $1.187 trillion this year and will exceed credit card volume in 2010, at $1.284 trillion, according to Goldman's research. Those figures, which include signature and PIN debit traffic at Visa and MasterCard, represent growth rates of 5.4% and 8.2%, respectively, leading the Goldman analysts to nominate the debit market as the “undisputed leader” as a processor growth market. Certain payment channels also look promising, according to Goldman. E-commerce volume globally will expand from $736 billion this year to just shy of $1 trillion in 2012, the firm forecasts. Volume on prepaid cards will grow from $279 billion to $335 billion. And mobile payments, albeit a nascent market, will see volume climb rapidly, from $26 billion to $135 billion. Indeed, Visa and MasterCard may stand to benefit most from the fast growth in mobile payments. “MasterCard and Visa will be the highways of choice for these emerging payments,” said Williams. That's because growth depends on bringing “a wide array of stakeholders together,” he said, a role the big bank networks are uniquely suited to play.