Card issuer Mastercard is feeling the sting from a decision by top US banks to ban credit card transactions for cryptocurrencies.
Cross-border volume growth is on a downward trend, as evidenced by a 19% increase last month compared to 21% for all of the first quarter, according to the company’s earnings results.
Mastercard’s 2 percentage point decline on cross-border volume is a reflection of a “recent drop-off in crypto wallet funding,” according to Mastercard’s CFO Martina Hund-Mejean on the company’s earnings call.
Mastercard can thank JPMorgan, Bank of America and others for that decline, as these banks’ decision to ban customers from using their credit card to transact in cryptocurrencies had a domino effect on other banks like Capital One and Citigroup.
Even though Mastercard had an otherwise stellar first quarter performance, analysts on the call were drawn to the cryptocurrency-fueled results “like a moth to the flame,” as Susquehanna senior analyst James Eric Friedman put it. Friedman said of the “deterioration”: “That’s a bigger callout than we had anticipated on the crypto,” asking if the company expected it would ever come back.
Mastercard’s Hund-Mejean identified the United States as the epicenter of where cryptocurrency wallet funding is falling.
“What the issue is that a number of the banks have decided, in particular in the United States, that they would not allow the usage of cards for this particular funding vehicle. And that’s why we have already seen a relatively significant decrease of the volume related to that event,” Hund-Mejean said.
Mastercard CEO Ajay Banga spoke about his recent travels to Asia and mentioned the fallout from Tokyo-based Coincheck’s $530 million NEM hack. Instead of blaming the banks that issued the credit card bans, Banga pointed to waning demand for cryptocurrency transactions today versus Q4 2017 and Q1 2018. Keep in mind that Banga previously wrote-off decentralized digital currencies as “junk”. Visa’s CFO similarly went on a tirade against bitcoin.
The drop-off in Mastercard’s cross-border volumes isn’t a one-month or single-quarter phenomenon. While Mastercard is otherwise operating on all cylinders, as evidenced by better-than-expected profits amid strong consumer spending, cross-border volumes will face “tougher comparisons” for the remainder of 2018 due to last year’s strong euro.
Is it possible we could see banks reverse course on their previous call to ban credit card transactions for cryptocurrencies? Perhaps. Stranger things have happened in a week when Goldman Sachs officially launched its bitcoin trading desk and South Korea is pushing to legalize initial coin offerings instead of banning them.
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