U.S. Bancorp’s payments unit produced a strong fourth-quarter profit thanks to the temporary release of loan-loss reserves, but the decline in debit card interchange caused by new regulations is forcing a strategy shift.
The Minneapolis-based card issuer is focusing on building up its traditional credit card operation, including looking for more credit card portfolios to acquire, Richard Davis, U.S. Bank chairman and CEO, told analysts Jan. 18 during a conference call to discuss quarterly results.
Although growth has slowed, U.S. Bank still “likes” the consumer and corporate payments business, Davis said. Noting that cross-selling bank customers credit and debit cards at branches is more effective than mass direct-mail campaigns, he acknowledged that such growth comes at a relatively slow pace.
“ If I can’t (generate) growth organically, I will continue to seek acquisitions in the more traditional credit card,” Davis said.
U.S. Bank’s Elan Financial Services unit in December purchased a $700 million portfolio of credit cards from Bank of America Corp., marking one of its largest acquisitions in four decades (
The bank also is expanding its cards and payments business overseas, particularly in Europe and Latin America, “because those markets … have a higher forecast for growth than the ones we are in,” Davis said.
U.S. Bank’s payments-unit income rose 21.6%, to $321 million, during the quarter ended Dec. 31, up from $264 million a year earlier. Net revenue rose 1.8%, to $1.16 billion from $1.14 billion.
The provision for credit card loan-loss reserves shrank 36.4%, to $131 million from $206 million, because of improving consumer credit. The average credit card charge-off rate declined 194 basis points, to 4.71% from 6.65%.
Net interest income for the payments unit rose 10.1%, to $359 million from $326 million, with retail credit card sales volume up 8.1%, to $13.3 billion from $12.3 billion. Corporate credit card sales volume rose 5.4%, to $11.7 billion from $11.1 billion.
Combined credit and debit card revenue during the quarter declined 20%, to $232 million from $290 million, largely caused by lower debit interchange revenue, the company said. The Federal Reserve on Oct. 1 implemented new debit-interchange rates mandated in 2010 by the Durbin amendment within the Dodd-Frank Act (
Total merchant-processing volume rose 8.4%, to $71 billion from $65.5 billion. Total transactions processed rose 10.2%, to 822.5 million from 746.7 million.
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