Despite the credit woes of their issuer customers, Visa Inc. and MasterCard Inc. chalked up strong first-half revenue growth, but a global economic downturn, deepening consumer weakness, and an intensifying crisis among lenders has turned market sentiment against the two companies.

Analysts expect the transaction growth rates at the two companies, which are scheduled to report quarterly results in the next two weeks, to decline considerably in the near term.

As of Friday, Visa's shares had given up almost all of their doubling in value since the company's initial public offering in March. Likewise, MasterCard's shares had lost almost 60% of their value since hitting a high in June.

Visa is scheduled to report results Wednesday for its fiscal fourth quarter, which ended Sept. 30. MasterCard is scheduled to report its third-quarter results Nov. 3. (Neither company would make executives available before their reports.)

Price increases have been a recent source of earnings strength at both companies, and observers said stressed issuers are unlikely to push for concessions.

But Eric Grover, a former Visa executive who is now a principal in the Menlo Park, Calif., consulting firm Intrepid Ventures, said industry consolidation, creating even bigger issuers with even more bargaining power, is the larger issue for the networks at the negotiating table.

"If you look at an issuer's revenue model and cost model, the network fees are a pretty small piece of the pie" when compared with things like interchange income, he said. As a result, the economic downturn is unlikely to fundamentally change "how issuers view the fees they're paying MasterCard and Visa."

Sanjay Sakhrani, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc., said he does not expect issuers to want to reduce the relatively slim revenue yields Visa and MasterCard earn on transactions that flow through their networks. (MasterCard reported a yield of 19 basis points for the second quarter.) "Can it impact the growth rate of the pricing changes? Perhaps."

Visa and MasterCard have said future price increases are likely to be associated with improvements in products and services.

In May, MasterCard said it thought it could achieve about 2% revenue growth from such price increases over the medium term, versus the roughly 5% the Purchase, N.Y., company posted for the second quarter. Mr. Sakhrani said the 2% figure was reasonable.

Mr. Grover said, "In a visible, painful recession, it's a time where even if you thought you had pricing power to push through a price increase, I think people will tend to tread gingerly. … In terms of willingness to fund new rollouts, you may find some issuers who are more inclined to defer."

Nevertheless, "the fundamental dynamic doesn't change — that they're helping them roll out stuff, and they're pricing for it," he said. "This is bad for the networks, but it's not nearly as bad as it is for their issuer customers with big credit portfolios."

Philip Philliou, a former MasterCard executive and a partner at the New York payment consulting firm Philliou Selwanes Partners LLC, said issuers are unlikely to go after the networks on pricing now that they are suffering.

The issuers might "raise the bar in terms of higher levels of service, more service, and more product," Mr. Philliou said. "Some of the advantages that dual issuers have is that they can make those demands. It's 'Who gets me the right product at the right time for the business that I'm facing?' "

In addition to weakening spending trends, a range of significant challenges have materialized for Visa and MasterCard, including movement in exchange rates.

Leaner times suggest expense cuts at the two companies. In a note to clients this month, Mr. Sakhrani projected that MasterCard's expense growth would decline from a pace that reflected its investment in a new debit platform — a major project for the company, which has lagged its San Francisco rival in the field.

Craig Maurer, an analyst at Credit Agricole Group's Calyon Securities, said marketing appears to be "the easiest lever" for Visa and MasterCard to pull when it comes to cutting costs. "I don't expect them to cease investment in either deploying capabilities overseas or into new technologies." They are more likely to try to become "more efficient in some places and [hire] to add capability in other places."

In an interview last week, Mr. Sakhrani said that with transaction volume trends deteriorating, the two companies have to find ways to manage costs. "Ultimately, we're going to have to ride the cycle through. Perhaps you have slower growth in the next year or so, but it's a powerful business model that will come back on the other side of the cycle."

In his report, he projected that MasterCard would post 8% growth in transaction volume next year and the year after that, and that Visa would post 10% growth.

"Clearly, the valuations imply that the growth rates are going to slow," Mr. Sakhrani told American Banker. But he called his forecast conservative in light of the numbers the companies have posted lately. (MasterCard said its second-quarter volume grew 12.8% from a year earlier.)

This month JPMorgan Chase & Co. reported that third-quarter transaction volume on its credit cards increased 0.3% from the second quarter and 4.6% from a year earlier, to $93.9 billion. But James Dimon, the New York company's chief executive, said during a conference call, "From what we know Visa numbers are more like zero" in terms of volume growth, and "we seem to be gaining a little bit of share" from other issuers.

Debit growth has outstripped credit growth for some time. For the second quarter, MasterCard reported 15.8% growth in U.S. debit volume, compared with just 0.7% in credit volume.

Adil Moussa, an analyst at Aite Group LLC, said the credit crisis has accelerated the shift toward debit spending as issuers have reduced credit lines and stiffened underwriting criteria, though a pullback by consumers means not all the decline in spending on credit cards is likely to show up in debit transactions.

In its third-quarter report this month, Bank of America Corp. said debit card revenue fell "slightly" from the second quarter "as consumers pulled back on spending."

Another recent reading on transaction trends was offered last week when American Express Co. released its third-quarter results. It said its worldwide volume growth slowed to 8%, from 12.3% in the second quarter and 13.8% in the first quarter. Daniel Henry, the New York company's chief financial officer, said on a conference call that the growth rate declined to 5% in September and slowed even further in the first 15 days of this month.

Mr. Sakhrani said falling commodity prices in recent weeks may undermine the lift in spending that had come from expenditures on nondiscretionary items like gasoline. As economic weakness spreads around the globe, cross-border transactions — which have been a rich source of revenue for both MasterCard and Visa — is an area where "there is some sensitivity."

A large concern for network profits has been the U.S. dollar's strengthening, which might sap foreign exchange benefits that the companies (especially MasterCard) have racked up in recent periods, he said.

Mr. Grover said credit card transactions "actually grew at a pretty healthy clip through the last two recessions." However, "this recession is likely to be deeper and longer," and since electronic payments now make up such a large proportion of spending in the United States, a further shift away from paper is unlikely to provide as much of a buffer this time.

According to Mr. Maurer, the stock declines at Visa and MasterCard overstate the ramifications of the economic downturn on their businesses.

The declines reflect general worries about a "consumer recession," he said. "It's still difficult to find stocks with these kinds of growth rates, returns, that lack credit risk."

Analysts also said the fundamental strength of the two companies' business models remains intact.

Some even say now might be the time for them to push further into areas vacated by retrenching issuers, such as product development or reward and loyalty programs.

The next year or two could be "defining" for Visa and MasterCard, Mr. Philliou said.

"There's always been tension between issuers and Visa and MasterCard. It's always been 'Just spend money on the brand,' " he said. "Now that banks have been hurt so badly, we may actually see large issuers looking more to Visa and MasterCard for real product and product strategy."

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