In a big note to clients, Citi’s Donald Fandetti makes a big, bullish case for cards (debt, credit) as a big way to play the emerging market consumer.
We believe Asia is on-track to become the largest card payment market in the world over the next decade, driven by rapid GDP growth, greater penetration of cards and emerging mobile/ecommerce. Asia accounts for ~30% of global card spend or $2T+ versus the U.S. at $3T+. Over the past several years, Asian purchase volume growth on V and MA has averaged 15-20%, 4-5% above their global spend average, and our GDP multiplier model suggests a sustained mid- teens rate going forward. In terms of sensitivity, every +5% increase in the Asian y/y spending growth rate boosts rev growth 1% and EPS growth 2% for the networks. Longer-term, the potential opening of the card market in China and the maturing of the Indian market remain the wildcards. If China were to open up their rapidly growing $1T+ market, it could boost y/y network volume growth rates in Asia by ~10%+. Lastly, wealth creation in Asia is driving sharp increases in cross border travel and luxury spend, all beneficial trends for the networks.
These two charts really stand out.
The first just shows how “un-banked” so much of the emerging market remains.
Second, looks specifically at how (relatively) few purchases are made with with cards in several countries.