How often people swipe matters more than how often they are shopping
For some companies in the payment chain, such as banks that issue cards, it matters mostly how much people spend or borrow in total, according to Bernstein analyst Harshita Rawat. But for others, such as merchants and so-called acquaintances who provide them with payment services, the number of swipes or clicks matters more.
That’s because the economics of paying in-person or at online checkout are some combination of fixed per-transaction and variable quantity-based fees. Fixed fees are usually most prevalent for businesses such as a pharmacy or grocery store, which often see lots of payments with relatively small tickets. Volume matters more with travel merchants such as airlines, whose sales are less frequent but larger and sometimes complex, for example when they are cross-currency.
The pandemic affected both: consumers traveled less, and shopped less. A new composite analysis from the Federal Reserve in December found that the number of card payments declined year-on-year in 2020 for the first time in two decades of data collection.
There was a sharp drop in the number of in-person card payments to around 12 billion. This is more than a nearly 9 billion increase in remote payments, a bucket that includes online e-commerce. On the other hand, the value of card payments still increased.
Even if transactions and volumes are on the rise again, relative rates matter. For example, the big-ticket event for Fidelity National Information Services’ merchant solutions business has changed long-time patterns.,
Historically, that business has generally seen revenue growing faster than volume. But in the third quarter, a 23% global dollar volume increase over the same period in 2019 translated into just 16% revenue growth.
Transactions grew at a much slower pace than volume, up approximately 13% from 2019. Also, the company said that some of its highest yield—or as a percentage of revenue—activity is in travel and airlines.
This means that for investors it is not just whether or not people are spending, but how they are spending. And it goes beyond just online versus in-store: Although people can effectively substitute in-person grocery orders for people online via apps, they can still exhibit hoarding-like behavior—or So can placing large orders online, or attempting to consolidate the occasional pick-up-milk trip into one big outing.
There are a few reasons to bet on ticket size generalizations. Already, this mismatch seems to be narrowing: The 7-point deficit between volume growth and revenue growth in FIS in the third quarter was less than half of the 16-point gap in the second quarter. Notably, according to Fed data, the total remote purchase ticket size dropped in 2020.
Remote payments are typically larger in-person. This could be a sign that post-pandemic online shopping may more closely mimic pre-pandemic, such as people ordering ahead through an app, even when they go out to grab some milk. Have been
Investors pay a lot of attention to how much consumers are spending during the pandemic, but perhaps less to how they went about it. That kind of tactical accuracy matters a lot in a strange environment.
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