Discover Makes The Most Of Upbeat Market Conditions To Report Strong Growth In Q3 Card Purchase Volume

by Trefis Team
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The six largest U.S. card issuers reported total Q3 purchase volumes of $569 billion for their retail credit cards – representing just under 61% of the total credit card purchase volume of $934 billion for the U.S. in the quarter. As has been the trend over several quarters now, the year-on-year growth in combined purchase volume for these issuers (11.1%) has been comfortably ahead of the growth in the overall industry (10.3%). The above-average growth can be primarily attributed to extremely strong growth for industry leader JPMorgan Chase (11.6%) and card-focused banking giant Capital One’s aggressive push in an environment that is conducive for card lenders. While Capital One’s purchase volumes jumped 16% year-on-year, Bank of America figured at the other end of the spectrum with a growth rate of less than 7%.

The credit card purchase volumes for individual issuers are taken from their respective quarterly earnings releases. Figures for American Express and Discover represent purchase volumes only for cards issued by them, with purchases made on AmEx or Discover-branded cards issued by other banks included in the total figure for the issuing bank. The total U.S. card purchase volume is as detailed by us in our previous article.

JPMorgan has a sizable lead over competitors in terms of card purchase volumes thanks to its position as the largest issuer of credit cards in the country. Citigroup displaced American Express from the second spot in Q3 2016, when the transfer of the Costco card portfolio was finalized, but the latter has done extremely well over recent quarters with its new merchant-focused growth strategy that aims to attract more merchants – in turn leading to faster customer growth. As a card-focused bank, Capital One’s rapidly growing card business will get an additional boost next year once it integrates Walmart’s card portfolio from Synchrony – catapulting it to the #3 position on this list by the end of 2019. Notably, these four card issuers account for more than 50% of the total credit card purchases in the U.S.

Discover and American Express stand out in this list of the largest card issuers due to their card-and-payments focused business models as opposed to the others, which are full-fledged banks. This makes growth in purchase volumes a critical metric for these two companies in terms of long-term value. Discover in particular raised concerns among investors in Q2 when it reported below-average growth in purchase volumes. However, the company did well to report an increase in purchase volume of 11.6% for its cards for Q3.

As one of only two companies with end-to-end card processing capabilities, Discover has benefited from the steady increase in non-cash payment globally, and it has also done well to increase its global presence over the years by partnering with local banks and financial institutions in other countries. We maintain an $89 price estimate for Discover’s shares, which is about 25% ahead of the current market price.

Details about how changes to outstanding card balances affect these issuers can be found in our interactive model for JPMorgan Chase | Bank of America | Wells Fargo | Citigroup | U.S. Bancorp | American Express | Discover

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