Visa as metric for the economy

How do you know if the holiday season was better or worse this year? Ask Visa (registration required):

Data from Visa is considered a reliable gauge of the economy because $17 out of every $100 is spent on its 500 million cards. Like monthly retail sales reports from the Department of Commerce, Visa’s holiday forecast includes spending on gasoline, grocery stores and restaurants.

Now that’s a metric! Sure, I can think of many ways a credit-card-based metric can be biased, but it’s probably a pretty interesting cross-section of economic activity. Now if Visa takes 1-2% of the transaction price, that would be $.17 out of every $100 spent in the U.S. going to Visa. Also not too shabby. 🙂

23 Responses to Visa as metric for the economy (Leave a comment)

  1. There’s actually a reason behind this weak spending, and it’s not what the so-called economic geniuses thinks it is. The only thing that surprises me is that retailers found a gain at all.

    I don’t know if anyone else noticed this, but over the course of December I noticed on at least 5 occasions that I can track that I purchased something that came out to a lower price on the register than the ticketed price. These were items that weren’t on sale, weren’t marked down, and provided no discount on the register tape (in other words, they were the “everyday” prices). In some cases, I knew what the price was going into the store to buy it as it was an item I purchased before (e.g. batteries, soap…maybe not X-mas gifts, but you get the idea.)

    A lot of retailers, particularly big box retailers (e.g. Shoppers Drug Mart in Canada…I think the American equivalent is Walgreen’s), are in for a really rude awakening.

  2. It would be about $1.70 out of every $100, actually (assuming my math skills are working at 3:30 am)

  3. 1% of $17 is $0.17, not $1.70, Bob…

  4. Amit Patel

    How do you know if the holiday season was better or worse this year?
    Ask Google!
    http://www.google.com/search?hl=en&q=metric+for+the+economy

    OK. So maybe that wasn’t such a good idea…. but at least the top result is for a Nut Driver, that has to account for something….

  5. Bob, you’re considering Visa takes 100% of all money spent

  6. It should be $0.17 if it’s 1-2% of the transaction fee (which is $17). Right?

    Either way, DAMN I’m in the wrong business…

  7. Séan

    they only make money out of every transaction, monthly leasing of the card machines (is this true, or do retailers pay their banking provider?) and monthly interest for those of us who don’t pay the bills on time.

    Sean

  8. Visa actually takes a small percentage of the transaction. A business will pay anywhere from about 1.5% – 4%+. Visa only takes about 10% of that (about .15% total). The majority of it goes to the bank that issued the customer’s credit card.

    Interesting thing, that bank that takes the majority of the transaction fee is the same one that collects the interest from credit card purchases made by that customer…

  9. Interesting! I wonder how India calculates its economy? If spending is to be gauged – most of the transactions happen with Cash. CC are still far from becoming big big time mainstream as it is in US.

    The only reason I bring it up is because of bolstering statements over last two years about Indian economy. Could it be # of cellphone subscribers for India?

  10. Jestep, interesting. I didn’t know that.

    Bombaywala, I understand that in China, CC are not as common either. Cell phones seem like a not-too-awful proxy.

  11. Well, google is now in the credit card processing arena via google checkout, when will google start offering credit/debit cards or lines of credit to people who use google checkout?

    Would seem like a great way to keep expanding google checkout and put a little more money into the google coffers! Plus it would give sites who use google checkout additional ways to sell.

  12. That is an amazing business model, I spend almost everything on my Visa.

  13. I don’t know if $17 out of $100 is all that indicative, though I’m guessing the measurement is disproportionately representative of what was spent on the internet. I’m actually surprised it isn’t higher; does anyone have a breakdown of Visa/Mastercard/Paypal/Cash for holiday sales in general? I’d like to see what trends are emerging, if any.

    As far as I can tell the reports of this being a “weak” holiday season seem to mostly apply to the real world stores, since it was a considerable record breaker for us (e-tailer) and we’ve been around for four holiday seasons. Of course some of this is thanks to Google Checkout’s free merchant processing which ended up being over >half

  14. Great stat Matt, I’d not seen that before. This type of nickel and dime economy works for Visa, Google, Ebay and many more who can leverage cheap computing power to handle millions of transactions quickly and easily. You may have to say to your kids “when I was a boy we had … coins!”

  15. Ah, I see where I misunderstood. I was looking at

    …if Visa takes 1-2% of the transaction price, that would be $.17 out of every $100 spent in the U.S. going to Visa.

    without taking into account that it was based on

    $17 out of every $100 is spent on its 500 million cards.

    Sorry for taking things off on a tangent.

  16. The economy should pick up this year as people start to feel better about life in general. I think that folks are finally dealing with and moving past 2001. The world is still a tough place but Americans have adapted as we always do.

  17. $17 out of $100 may not sound a lot, but if the other $83 includes things like rent, mortgage payments, etc. it is even more significant. (I haven’t found a landlord yet who would take credit cards.)

  18. I googled but failed to get any sites on this.
    My doubt is routing the nation’s transactions through VISA is more serious to indians than indian’s searching in google isn’t?
    Why is there no privacy concerns on this ?
    If subpoena( don’t know exactly what it is 🙂 is issued VISA won’t VISA handle even our President’s data?
    Why is it that no other countires are coming forward to do operations similar to VISA ?

  19. Dunno if you folx are aware, but Visa is now poised to invade the virtual world of American finance via that bastion of American classic gaming: Monopoly. I heard from a banker friend of mine that they were set to be the currency of choice in the American game soon, though they’ve already replaced currency in some European Monopoly versions:

    http://arstechnica.com/news.ars/post/20060725-7344.html

  20. ”Data from Visa is considered a reliable gauge of the economy because $17 out of every $100 is spent on its 500 million cards. Like monthly retail sales reports from the Department of Commerce, Visa’s holiday forecast includes spending on gasoline, grocery stores and restaurants.”
    :S

  21. Hello matt, It would be about $1.70 out of every $100, actually (assuming my math skills are working at 3:30 am)

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