Notes on Mastercard Q3 2022 results: strong dollar conceals international growth

Earlier in the week Mastercard (NYSE: MA 0.00%↑) and VISA (NYSE: V 0.00%↑) reported their Q3 2022 earnings results. I wrote about VISA results in my previous letter, arguing that the company’s operational metrics, such as payment and cash volumes might be of greater interest than its financial results, as they provide an insight into the state of economies and financial health of consumers around the globe. Let’s take a look at Mastercard results.

In case you missed my previous letter 👉🏻 “Notes on VISA FY Q4 2022 results: U.S. credit card holders drive payments volume up”

Image source: Mastercard

Before jumping into the numbers, it is important to note a few differences between Mastercard and VISA. First of all, it’s the scale. Thus, Mastercard is a smaller network than VISA in terms of payment volume, which is the dollar value of card transactions excluding cash withdrawals. In Q3 2022 Mastercard reported $1.67 trillion, while VISA reported $2.93 trillion in payment volume. Second, as the chart below illustrates, Mastercard had a larger share of international payment volume than VISA (62.8% vs. 49.5%). And finally, Mastercard had a larger share of credit card payment volume than VISA (56.9% vs. 51.0%).

Mastercard reported a record quarter with the payment volume reaching $1.67 trillion, which represented a 7.9% growth compared to Q3 2021. As the chart below illustrates, the growth rate is rapidly decelerating, but still outpaces the growth numbers posted by VISA. It should also be noted that similar to VISA, Mastercard reports payment volume in U.S. dollars, which means that its international payment volume was negatively impacted by the dollar’s strong appreciation.

Thus, in U.S. dollars, the company reported an 11.9% growth in the U.S. payment volume and a 5.6% growth in international payment volume (see the chart below). However, excluding the currency exchange impact, the international payment volume grew by 17.3% compared to Q3 2021 (the company reports FX-neutral growth as “Local growth” in its operational performance data), including 15.9% YoY growth in Europe, 15.4% YoY growth in APMEA region (Asia Pacific/Middle East/Africa), and 32.0% YoY growth in Latin America. Of course, part of this growth came from inflation in the respective regions, but it still indicates strong consumer spending.

A notable difference with VISA results was the debit card payment volume growth. Thus, VISA reported a minor YoY decline of 0.4% in its debit card payment volume, while Mastercard posted a 6.0% YoY growth (see the chart below). At the same time, Mastercard reported a 9.4% growth in credit card payment volumes, which trailed VISA’s 11.2% YoY growth. In absolute terms, debit card volume reached $0.72 trillion, and credit card volume reached $0.95 trillion this quarter.

In the United States, Mastercard reported a similar picture to VISA: while debit card volumes grew moderately, the growth in credit card spending considerably outpaced inflation and grew 20% compared to Q3 2021. Q3 2022 was the sixth consecutive quarter of double-digit growth in credit card spending, though the pace is decelerating. Consumers are turning to credit cards to sustain their spending, so it is not surprising that outstanding credit card debt returned to its pre-pandemic levels. In absolute terms, the U.S. credit card payment volume reached $0.34 trillion, and the debit card payment volume reached $0.28 trillion.

Internationally, credit card volume grew by 4.1%, and debit card volumes grew by 7.8% compared to Q3 2021. Again, excluding the impact of dollar appreciation, international credit card volumes grew by 16.1% YoY, and debit card volumes grew by 19.1% YoY. I wouldn’t dare to forecast what happens to the dollar in the coming quarters, but any weakening would “unmask” the growth in the international payment volumes. In absolute terms, international credit card volumes stood at $0.61 trillion and debit card volumes stood at $0.44 billion.

Cash volume, which is the dollar value of cash withdrawals using Mastercard-branded cards, continued to decline in the quarter both in the United States and Internationally. Thus, the cash volume in the U.S. declined 3.2% YoY and the international cash volume declined 11.3% YoY. In absolute terms, U.S. cash volume was $0.06 trillion, and international cash volume was $0.34 trillion. VISA also reported a cash volume decline both, in the U.S. and internationally.

In summary, similar to VISA, Mastercard’s results showed strong growth in U.S. credit card spending, while the strong growth in international debit and credit card spending was “masked” by dollar appreciation. Let’s wait for the next quarterly results to see if the international growth was purely driven by inflation, or if there was more to it.

Disclosure & Disclaimer: despite rocky performance in 2021 and 2022, I own shares in most of the companies that I write about in this newsletter, as I am extremely bullish on the transformation in the financial services industry. However, none of the above is financial advice, and you should do your own research.