That Sucking Sound Is the Downdraft in Big Banks’ Charge Volumes

The latest credit card charge-volume figures from the nation's top three banks show big declines, portending weak results when other issuers, merchant acquirers, and Visa Inc. and MasterCard Inc. report their fourth-quarter earnings in coming days. On Friday, Bank of America Corp. reported fourth-quarter purchase volume of $56.6 billion on its credit cards, down 17.2% from $68.4 billion a year earlier. Citigroup Inc. that day reported $75.7 billion in North American purchase volume, down 15.2% from $89.3 billion in 2007's fourth quarter. And on Thursday, JPMorgan Chase & Co. reported $88.2 billion in credit card volume for the fourth quarter, down 7.6% from $95.5 billion a year earlier. Chase's numbers include cash advances and balance transfers in addition to purchases but exclude the Washington Mutual card portfolio Chase acquired after WaMu's failure in late September. “The order of magnitude is surprising,” says C. Marc Abbey, a partner at Linthicum, Md.-based First Annapolis Consulting Inc. who works with many merchant-acquiring clients. Volumes reported by acquirers, he notes, reflect their particular portfolios and industry concentrations, but “issuers are a better picture of what's happening across the economy.” Visa, MasterCard, and some publicly held merchant processors revealed slow payment card volume growth in the third quarter and the first month of the fourth when they last reported earnings (Digital Transactions News, Nov. 4, 2008). Their predictions about a continuing fall-off in discretionary spending, which tends to go onto credit cards, are being borne out. But Abbey attributes the slowdown not only to reduced consumer spending but also to issuers “battening the hatches” on credit approvals and lines to limit losses during a recession, and to the difficulties some issuers have had in funding their portfolios through the securitization of credit card receivables. Even the payment card industry's bright spot, debit cards, is taking a hit. BofA reported purchase volume in its big debit card portfolio of $52.9 billion in the fourth quarter, up only 3.5% from $51.1 billion in the same 2007 period. Some merchant sectors, notably online retailers and public-sector merchants, are still doing fairly well, Abbey says. Chase Paymentech Solutions, the merchant-acquiring arm of JPMorgan Chase and the nation's largest online acquirer, last week reported in its final Cyber Holiday Pulse Index for the 2008 season that its online sales volume was up 4.5% from 2007's holiday volumes, but the transaction count grew “a significant” 16.5%. That, of course, had the effect of driving down the size of the average ticket by what a Chase Paymentech release called “an unanticipated 10.3%.” The acquirer said its numbers indicated aggressive price-cutting by retailers and deal hunting by consumers. “Acquirers are expecting 2009 to be a difficult year,” says Abbey, but he adds that his clients expect growth rates to start picking up in the second half. For all of 2008, BofA reported $243.5 billion in credit card purchase volume, off 3.5% from $252.3 billion in 2007. Debit card purchases rose 11.1% to $210.5 billion from $189.5 billion in 2007. Citi's North American credit card purchase volume slipped 3.9% to $316.7 billion in 2008 from 2007's $329.7 billion. At Chase, credit card volume, including cash advances and balance transfers, grew 1.8% to $361.1 billion from 2007's $354.6 billion, excluding WaMu. With WaMu, volume was $368.9 billion, up 4%.