The major US BigTech companies disclosed their quarterly results last week showing a spectacular boom in digital markets as the global economy is ailing. The combined sales of Alphabet, Amazon, Apple and Facebook grew by 18% year on year while after-tax profits increased by 31% to $39 billion. Meanwhile, in China, Ant Group, the owner of the Alipay QR-codeA QR-code (abbreviated from Quick Response code) is a type of matrix barcode (or two-dimensional barcode) first designed in 1994 for the automotive industry in Japan. A barcode is a machine-readable optical label that contains information about the item to which it is attached. In practice, QR-codes often contain data for a locator, identifier, or tracker that points to a website or application. A QR-code uses four standardized encoding modes to store data efficiently; extensions may also be use... More based paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More app is expected to raise a record-breaking $37 billion at its dual listing next week in Shaghai and Hong Kong.
But the digital tide has not lifted all boats. Payment processors have been struggling due to a drop in consumer spending. Visa posted a profit of $2.14 billion down 29% from $3.03 billion in the same period a year earlier. Mastercard’s revenue fell by 14% from a year earlier to $3.84 billion. Both companies were amongst key performers in the stock market over the past five years prior to the pandemic. As for Amex, they saw a 40% drop in profits from a year earlier
All three companies have pointed to a sharp slowdown in international travel as the key factor behind declining profits. According to a research analyst cited by the Financial Times, cross-border transactions accounted for roughly 40 per centFraction of a currency representing the hundredth of the unit of account. More of Mastercard’s revenue before the pandemic. Cross-border transactions which generate much higher margins than domestic transactions were down by 36% per at Mastercard, and 29% at Visa year-on-year.
Both Visa and Mastercard have in the past targeted cashMoney in physical form such as banknotes and coins. More substitution as a growth avenue. Mastercard CEO Ajay Banga regulary states that he views “cash as the real competitor for the company”. In 2017, Visa launched the “The Visa Cashless Challenge,” whereby it offered small business food service owners direct financial incentives to stop accepting cash payments. However, 40% of their profits come from cross-border transactions which are hardly in competition with cash.
Meanwhile, in the UK, the British Retail Consortium (BRC) joined by other trade bodies are calling for government action to tackle excessive card fees. The BRC’s latest Payment Survey shows that the cost to retailers of accepting payments reached £1.1 billion in 2019, of which £950m was from card payments. While card payments account for 4 in every 5 pounds spent in retail, they also incur the largest charges with shops charged an average of 18.4p per credit card transaction (up 15% from 2016), and 5.9p for every debit card transaction (up 6% from 2016). Ultimately these costs, equivalent to £40 per household, will be reflected in consumer prices.
The BRC says the overall increases in scheme fees – 39% in 2017 and 56% in 2018, measured as a percentage of turnover – were “clear demonstrations of an abuse of market dominance”. In June, the U.K. Supreme Court ruled in favour of a group of British retailers (in a long-running dispute with Mastercard and Visa Europe finding that the default “multilateral interchange fees” (MIFs) set by Mastercard and Visa restrict competition. According to some estimates, retailers could receive €17 billion in pay-outs.
Andrew Cregan, head of finance policy, British Retail Consortium says: “With card payments accounting for almost 80% of retail sales, it is vital that the Government takes action to tackle excessive card costs. Without action we will see businesses put under further pressure and it will be consumers who are forced to pay the price.” One key action wold be to ensure access and acceptance of cash in order to maintain some level of competition in the payments market.