Visa Jumps on Mastercard's Results

Visa Inc. (NYSE: V) shares soared higher after rival Mastercard Incorporated (NYSE: MA) reported surprising third quarter earnings. Despite the fact that the credit card company swung to a quarterly loss, Mastercard continued to see continued strong credit card usage. Worldwide gross dollar volume rose 12% in local currency terms with spending in the U.S. up 4.7% along with much stronger growth in emerging markets like Asia and Latin America.

Companies like Visa and Mastercard make money by processing credit card transactions. They take a percentage of each credit card sale processed as a fee while the banks - who also take a cut - provide the actual short-term loans to consumers. As a result, an increase in the use of credit cards is great news despite the fact that delinquencies may be rising. After all, banks are on the hook for the delinquencies while Visa and Mastercard continue to rake in the fees without consequence.

Many analysts had believed that credit card usage would slow as the U.S. enters into a recession and consumer credit continues to hurt. However, usage has only continued to increase but the issuance of new credit cards has slowed due to new standards. The delinquencies, however, remain the largest concern. Banks were forced to write down about $21 billion in bad credit card loans in the first six months of the year and many expect further losses of $55 billion in the next 12 months.

How well companies like Visa will weather this storm remains to be seen, but the trend from cash to plastic seems to remain in tact for now. People have continued to spend money on their credit cards while the only slowdown in growth appears to be limited new issues as banks tighten their standards for who can qualify for cards.

Shares of Visa jumped $6.11, or 11.64%, to $58.61 per share in mid-day trading.