Earnings preview: Payments companies face up to 4Q


As card giants, payments processors and fintechs report quarterly results in coming weeks, the reports will show how a difficult economy has impacted their customers.

Over the next five weeks, card issuers and networks, fintechs and payments processors will share key data on consumer spending and payment volume, credit metrics such as delinquencies and charge-offs, merchant and bank technology trends — all of which is colored by inflation, rising interest rates and concerns of higher unemployment. 

For instance, PayPal is expected to be impacted by consumers’ discretionary spending pullback and the stagnation of e-commerce. If small business owners are hurting, that could affect merchant service providers including Block’s Square and Fiserv’s Clover. 

At card issuers American Express and Discover, inflation and rising interest rates may result in higher charge-off rates and delinquencies.

Visa, Mastercard, Amex, Discover

As consumer demand declined in the fourth quarter, consumer payments volume growth slowed for credit and debit card issuers, suggesting the biggest U.S. card networks, Visa and Mastercard will also be negatively impacted. Those card networks report their quarterly earnings Jan. 26.

Visa and Mastercard are likely to report slower volume growth for the quarter, although consumer spending remained somewhat healthy, Bank of America analyst Jason Kupferberg wrote in a Jan. 19 note to investor clients.

The two likely benefited from rising cross-border activity during the quarter, and foreign exchange volatility potentially bolstered cross-border revenue for Visa in particular, Kupferberg said.

Discover Financial Services was the first card company to report Q4 earnings on Jan. 19. Its net charge-off rate ticked up to 2.13% in the quarter.

“Consumers are starting to significantly increase their revolve rates, likely indicating pressure,” Oppenheimer & Co. analyst Dominick Gabriele wrote in a Jan. 18 note to investor clients.

Discover also increased its credit loss provisions to $883 million as of the end of the fourth quarter, according to its filing with the Securities and Exchange Commission, up from $773 million in the third quarter.

Like Discover, American Express has said rising unemployment is strongly linked to consumers struggling to pay their bills. Amex, which reports Q4 earnings Jan. 27, benefits from higher-income customers, but the company will still see consumer credit losses rise because unemployment is likely to climb, Gabriele said.

Amex may face some scrutiny over expenses, but the company’s focus on marketing and customer engagement spending “really gives them a lever to pull” when needed, Gabriele said.

PayPal, Affirm, Block

Digital payments giant PayPal has been under the microscope in recent months: It’s grappled with C-suite changes, missed growth goals in recent years and now faces an e-commerce slump.

Amid intense checkout competition, acting CFO Gabrielle Rabinovitch said in December the company is holding or modestly gaining market share – although analysts are skeptical of that based on holiday spending data. 

“Debates around market share/competition for (PayPal) have escalated,” Kupferberg wrote in a Jan. 18 note to investor clients. Analysts expect more details on market share metrics during the company’s Feb. 9 earnings call. 

For buy now, pay later provider Affirm, Bank of America analysts downgraded the company’s stock late last year, noting the company has significant exposure to consumer credit risk and lower-income consumer spending. Affirm, which recently scrambled to address a technical glitch that left users with duplicative charges, also faces concerns related to loan funding. 

Kupferberg said he’s employing “a somewhat low bar” when the company reports earnings in February. 



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