Thursday , July 16, 2020

Short-Term Coronavirus Impacts Are Unlikely To Hurt Long-Term Payments Viability, Analysts Say

As consumers and businesses contend with the uncertainty spawned by the coronavirus outbreak, payments companies will feel the effects, perhaps more than they’ve already announced.

Though neither of the two larger U.S. card networks—Mastercard Inc. and Visa Inc.—have updated their recent revisions to their financial guidance, some analysts suggest the impact from the disorder may go deeper.

A March 10 note on Mastercard from Keefe, Bruyette & Woods—based on a conference call involving Sachin Mehra, Mastercard’s chief financial officer—says at the time of Mastercard’s Feb. 24 revision the coronavirus impact was largely felt in the Asia-Pacific region. “However, the spread of the virus beyond Asia Pac has led to a further slowdown in cross-border activity, mostly cross-border travel and to a lesser extent cross-border e-commerce,” the KBW note says. “Mastercard has also seen a slowdown in switched volume and transaction growth, although to a lesser extent.”

Similarly, Instinet LLC, a New York City-based equity research firm owned by Nomura Group, holds that the extent of the impact from Covid-19, the specific strain of coronavirus that has spread to various parts of the world, on consumer sentiment and business spending remains unclear.

In its research note, Instinet says further cuts to estimated earnings for some payments companies may be necessary. While it maintains a bullish long-term outlook, Instinet suggests the short term may be affected. Instinet lowered its fiscal second-quarter earnings-per-share estimate for Visa to $1.40 from $1.43. It took a similar approach to Mastercard, lowering its first-quarter EPS estimate to $1.89 from $2.08. PayPal Holdings Inc.’s EPS for the first quarter is now 76 cents, compared with 77 cents previously. 

Instinet also revised its EPS guidance for Square Inc. to 92 cents from 94 cents, but for slightly different reasons. “While COVID-19 has had limited impact on domestic volumes thus far, we are cautious on [Square’s] outsized exposure to [small and medium-size businesses], which we believe will be disproportionately challenged if virus fears push the economy into recession,” Instinet’s note says.

Still, though there may be short-term effects, the payments industry very likely will weather this event, suggests Aaron McPherson, vice president of research operations at Marlborough, Mass.-based Mercator Advisory Group Inc.

“While payment companies such as Visa and Mastercard are reducing their guidance, they are still expecting positive growth,” McPherson says in an email to Digital Transactions News. “Historically, the payments industry has continued to grow through good times and bad. While there are many things to worry about, the health of the payments industry is not one of them.”

In related news, processor and banking-services provider Fiserv Inc. postponed its March investor conference to a date to be determined, citing an abundance of caution related to the coronavirus.

Meanwhile, Square said its March 24 investor day will be a Webcast instead of an in-person event. Square said the change is to accommodate ongoing travel and workplace restrictions. Square is one of many companies encouraging employees to work remotely when possible.

American Express Co., too, is changing its March 17 investor event to a call it will webcast. 

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