Payment stocks have lately come under renewed pressure amid a resurgence of Covid-19 cases in Western Europe and also due to possible regulatory changes after Jerome Powell is nominated for a second term. Germany--the region’s largest economy--Austria and the Netherlands have recorded the biggest jump in infections over the past week though death and fatality rates remain low.
Visa Inc. (NYSE:V) is down 4.6% over the past five trading sessions while its close peer MasterCard Inc. (NYSE:MA) has tanked 10.6% over the timeframe. Visa though has other problems after Amazon Inc. (NASDAQ:AMZN) said last week that it would stop accepting Visa credit cards issued in the United Kingdom from Jan. 2022, due to unusually high transaction fees despite advancement in technology. Although the UK represents less than 1% of Visa’s credit card volumes, the market has been taking it as a bad sign for the card company.
But it’s not just the two leading payment networks caught in the ongoing doldrums; many payment stocks, including online processors and even fintechs, have been falling on worries of reduced customer activity as Covid-19 spreads again at an alarming clip.
American Express (NYSE:AXP) is down 4.9%; PayPal Inc.(NASDAQ:PYPL) has hit a 52-week low after plunging 8.1%, Square Inc. (NYSE:SQ) has cratered 8.9%, Fiserv (NASDAQ:FSIV) is down 5.1% while recently IPO’d payment processors DLocal Ltd (NASDAQ:DLO) and Blend Labs (NYSE:BLND) have declined 8.0% and 12.0%, respectively.
Meanwhile, the Bloomberg Digital Payments Index has dropped to its lowest level since December.
Learning from China
Perhaps taking its cue from China, Austria began a new national lockdown on Monday that could last up to 20 days, while Germany appears on the precipice of taking drastic action after Chancellor Angela Merkel said the country faces its worst moment of the pandemic yet. There are widespread fears that the continent’s economy could suffer badly if more European countries impose stricter rules or lockdowns with travel and consumer spending--both of which are very important to payments companies--taking the biggest hit. Non-U.S. customers make up more than 40% of revenue for both Visa and Mastercard.
Although the Austria lockdown has triggered mass protests across the nation, maybe it’s for the best, with strict lockdowns in China having been repeatedly successful in curbing second and third waves of Covid-19 before they got out of hand.
They say once bitten, twice shy. Back in August, at a time when the majority of western economies were doing everything in their power to avoid locking down their economies again in the face of the fast-spreading Delta variant of Covid-19, China--once the epicenter of the virus--took an uncompromising approach by imposing widespread travel restrictions and new lockdowns.
Authorities in Beijing curtailed public transport and taxi services in 144 of the worst-hit areas nationwide, including train service and subway usage in Beijing.
At that time it seemed like overkill, with just 500 cases of the delta virus having been reported nationwide so far and a good 61% of the population already fully vaccinated. However, Beijing opted to employ its tried-and-tested method of targeted lockdown that had proven successful in stopping no less than 30 Covid-19 flare-ups in the past.
And, it worked, with the country managing to suppress subsequent waves of the disease in a matter of weeks.
Luckily, the worst might be behind the rearview mirror for countries like the UK thanks to high levels of built-up immunity.
A combination of good vaccine rollout, particularly among older and more vulnerable groups, as well as natural immunity from previous infection means that these countries have much smaller populations that remain vulnerable to the scourge.
Indeed, researchers at the London School of Hygiene and Tropical Medicine have been trying to quantify this number by looking at what would happen if everyone was suddenly exposed to the virus in one go and found that England would have, by far, the fewest people ending up in hospital--just 62 per 100,000 people. That’s way lower than 800 in Romania, which has struggled to convince its public to come forward for vaccination, and more than 300 in Germany, largely because of the country’s lower levels of infection to-date.
By Alex Kimani for Safehaven.com