with special introduction: top performing merchant verticals
TRANSCRIPT
PowerPoint PresentationMike Strawhecker VP / Director of TSG
Metrics – The Strawhecker Group [email protected]
www.TheStrawGroup.com
Bob Loewens Director of Analytics – The Strawhecker Group [email protected] www.TheStrawGroup.com
© Copyright 2013. Electronic Transactions Association/The Strawhecker Group. All Rights Reserved.
US Economic Indicators Report
This report is a compilation and analysis of US economic data. Its intent is to provide a deeper understanding of the US economy and therefore, the ability for ETA members to better assess their position in the current economic climate. This is the 20th edition of the quarterly released report. Please reference cited sources for more detailed statistics. The views expressed are those of ETA/TSG and are subject to change. They are shared for educational purposes only. The information is based upon information we consider reliable, but its accuracy and completeness cannot be guaranteed. This report is a member benefit provided to the Electronic Transactions Association’s 500+ worldwide member companies.
With special introduction: Top Performing Merchant Verticals
Q3 2013 – 20th Edition
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INTRODUCTION: Top Performing Merchant Verticals for ISOs The table below displays the annual total volume growth (net of attrition, same store sales and new account volume(s)) and the ISO/Acquirer total net revenue rates for 14 SIC Categories containing “like” merchants. TSG has combined the hundreds of individual SICs residing in TSG’s database of 1.8 million merchants. SIC categories 10 (Entertainment & Recreation) and 11 (Construction Services) have had some of the more attractive growth patterns over the past five quarters and also have above average profitability, which is influenced by account size to a certain extent. SIC 9 (Health & Medical Svcs.) has had very stable growth rates in the mid teens and also has attractive profitability.
SIC Volume Stats Annual Total $ Volume Growth *ISO/Acquirer Total Net Revenue %
SIC Group
$ Vol. Share
Annual Vol/Acct
Avg. Ticket
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
1 21.4% $383,506 $26 17% 18% 13% 18% 15% 0.598% 0.610% 0.606% 0.640% 0.638%
2 12.9% $128,519 $92 1% 4% 4% 11% 7% 0.974% 0.971% 0.953% 1.029% 0.975%
3 15.7% $104,286 $138 7% 7% 5% 9% 12% 1.119% 1.139% 1.097% 1.156% 1.095%
4 6.5% $338,907 $31 11% 12% 8% 11% 14% 0.633% 0.622% 0.625% 0.674% 0.652%
5 5.6% $199,453 $85 8% 8% 7% 13% 12% 0.776% 0.812% 0.791% 0.791% 0.751%
6 6.0% $250,715 $189 11% 12% 8% 14% 13% 0.750% 0.770% 0.753% 0.765% 0.716%
7 9.2% $316,117 $358 24% 25% 22% 22% 13% 0.646% 0.676% 0.652% 0.700% 0.650%
8 5.7% $149,752 $107 19% 21% 9% 13% 9% 0.872% 0.975% 0.872% 0.988% 0.899%
9 7.8% $133,380 $130 11% 12% 10% 16% 14% 1.191% 1.221% 1.128% 1.196% 1.205%
10 3.4% $169,229 $53 28% 39% 30% 34% 31% 0.982% 0.987% 0.937% 0.967% 0.947%
11 2.6% $92,521 $608 14% 17% 22% 29% 25% 1.250% 1.320% 1.302% 1.307% 1.195%
12 1.6% $186,843 $159 10% 16% 20% 24% 30% 0.854% 0.904% 0.825% 0.847% 0.743%
13 1.2% $284,257 $208 9% 13% 13% 15% 11% 0.694% 0.762% 0.734% 0.745% 0.699%
14 0.4% $319,033 $69 12% 15% 9% 7% 0% 0.780% 0.761% 0.713% 0.799% 0.766%
Highest Value Lowest Value
SIC 1 SIC 2 SIC 3 SIC 4 SIC 5 SIC 6 SIC 7 SIC 8 SIC 9 SIC 10 SIC 11 SIC 12 SIC 13 SIC 14
Eating, Drinking & Hospitality
Entertainment & Recreation
Construction Services
Transportation Services
Manufacturing Petroleum
*ISO/Acquirer Total Net Revenue %: Sum of total bankcard and PIN net processing revenue and monthly and annual fees less other costs of sales as a percent of total volume
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Federal Reserve’s Beige Book: 12 District Overviews Page 12
Retail Sales by Segment from the Census Page 15
Total Same Store Sales from TSG Database Page 16
Same Store Sales from TSG Database by SIC Code Page 17
Credit Card Data Page 19
Debit Card Data Page 20
Credit/Debit Average Ticket Sizes Page 21
VISA/MC Credit & Debit Cards in Circulation Page 22
VISA/MC Volume per Card Page 23
Table of Contents
Acquisition Multiples Page 5
Payments Indicators
Card Volumes
Consumer Spending & Hourly Wages Page 7
Money Stock & Velocity Page 8
Real GDP & V/MC Volume Page 8
Employment & Real GDP / Labor Productivity Page 9
Manufacturing & Non-Manufacturing Activity / Industrial Capacity Utilization & Prices Page 10
New Home Sales by Region & Consumer Credit Page 11
Macroeconomic Indicators
Microeconomic Indicators
Table of Contents * Payments * Macro * Micro * Volumes
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TSGPX S&P 500
Payments Indicators: Payments Companies Vs. S&P 500 The chart below displays the performance of a $100 investment in an index of selected payments companies which represent the “TSG Payments Index” - this index is calculated on a value weighted basis using market capitalization and is compared to the S&P 500 which is also calculated using the same methodology. A $100 investment in the TSGPX in Q1 2007 would now be valued at $259, as compared to $118 if invested in the S&P 500.
VS.
+2.5% CAGR
The chart above displays the performance of $100 investment in an index of the following listed companies which represent the “TSG Payments Index” - this index is calculated on a value weighted basis using market capitalization and is compared to the S&P 500 which is also calculated using the same methodology. This analysis does not include affects of re-invested dividends. While some of the companies listed in TSG’s Payments Index do not meet the requirements to be a S&P 500 listed company (S&P listed companies have a market cap of at least $3 billion), the S&P 500 served to be the best comparable index to TSG’s Payments Index since it is one of the most commonly used benchmarks for the overall U.S. stock market. In fact, many consider it to be the definition of the market. The companies included in TSG’s Payments Index met the criteria that at least 50% of their revenues were produced from electronic payments products or services. Ingenico and Gemalto have been removed due to inclusion of NetSpend and Cardtronics as well as their being traded on non-US exchanges. As of Q4 2011 Fundtech has been removed due to an acquisition and Tier Technologies’ name has been changed to Official Payments. Vantiv was added to the index as of Q1 2012. 3PEA International was added in Q1 2013. LML Payment Solutions and Transaction Network Services were removed as of Q1 2013 due to acquisition.
+15.1% CAGR
Table of Contents * Payments * Macro * Micro * Volumes
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16% > 5.6x 16% < 1.00x
.05% > 6.0x .05% < 0.57x
Net Revenue Multiple (Annual)
• No sales channel/force included in sale • Stagnant or declining growth • High attrition ( > 20% per year) • Low net revenue margins • No merchant account portability
• No competitive sales strategy • High losses • Little or no profitability • Few cost synergies to buyer
Low Multiple Characteristics
• Sales channel/force included in sale • Solid sales growth ( > 10% per year) • Low attrition ( < 15% per year) • Solid net revenue margin • Strong management team
• Ease of merchant account portability • Sustainable strategy or market niche • Low losses • Good profitability • Good cost synergies to buyer • Technology
High Multiple Characteristics
Cost of the Transactions: • Interchange • Assessments and network fees • Residuals paid to sub-ISOs • Third Party Processing Costs
Net Revenue = Gross Revenue + Other Income – Cost of the Transactions
Other Income • Equipment revenue • Lease revenue • Additional service revenue • Monthly fees
Net Revenue Multiples: Three Year Rolling Averages
3.1 3.0 2.9
Red Plots = 2010 - 2013
Acquisition Multiples - Review of Payments Industry M&A Transactions - A Historical Perspective: Industry Enterprise and Merchant Portfolio Net Revenue Multiples
Timeframe: 2000 – 2013
Source: TSG internal records
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Payments Indicators: Attrition Summary The attrition figures (red bars) below are based on accounts producing net revenue in the same month a year ago and no longer producing net revenue in the same month a year later. Annual changes in the retained accounts’ volume processed (defined as non-attrited accounts) and net revenue generated are represented by the orange bars in the below charts. New accounts’ volume and net revenues are represented by the green bar charts. The blue charts are the ending total level of volume or net revenue as compared to the same time period a year ago; 113% for example in Q3 2013 for Ending Volume represents a 13% growth in total volume.
Net Revenue at Start of Period Net Revenue Gross Attrition Chg. in Ret. Acct Net Revenue New Net Revenue Added Net Revenue at End of Period
Merchant Portfolio – Average Net Revenue Attrition & Growth Performance
+4% +2% +4% +2%
-13% -12% -13% -14%
100% 100% 100% 100%
+22% +22% +28% +23%
113% 112%
Q3 2013Q3 2012Q3 2011Q3 2010
Volume at Start of Period Volume Gross Attrition Chg. in Ret. Acct Volume New Volume Added Volume at End of Period
Merchant Portfolio – Average Dollar Volume Attrition & Growth Performance
*Attrition rates based on active accounts only, numbers may not sum due to rounding
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-17% -17% -16% -19%
100% 100% 100% 100%
+20% +22% +28%
113% 121% 119%
Source: TSG internal database of 1.8 million merchants
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Macroeconomic Indicators
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Real Annual Growth in Consumer Spending & Hourly Wages and Unemployment
(S.A. - Wage growth in excess of CPI % chg., Real PCE growth)
Real Wage Growth Real YOY % Chg. In PCE Unemployment %
Consumer Spending, Wages & Unemployment (Q1 2007 – Q3 2013)
Consumer Spending & Wages: Personal consumption expenditures, a measure of consumer spending, increased 1.5% in Q3 2013 compared to 1.8% in Q2 and 2.3% in Q1 2013. Furnishings and Durable Household Equipment as well as Recreational Goods and Vehicles both grew in the low double digits in Q3 while spending on Clothing & Footwear and Housing & Utilities decreased in the low-mid single digits. Goods spending has been the driving factor in PCE growth in recent quarters as services have been growing in the low single digits. Real wage growth remained in the black for the 3rd consecutive quarter, a positive for consumers financial condition. Based on recent trends in spending patterns it appears that consumers are opting to spend on Furniture, likely a side effect of the recovery in the housing market, and Recreational goods. Sources: BLS.gov, BEA.gov
GDP / S&P 500 / DJIA (Q1 2007 – Q3 2013)
GDP & S&P 500 Comparison (% Change From Previous Quarter)
GDP: Real GDP grew at a seasonally adjusted annual pace of 3.6% in Q3 2013 according to the “second” estimate from the BEA, an estimate that includes more complete data than advance estimates. That is an expansion from Q2 2013’s level of 2.5% and is above the typical target growth of around 2% to 2.5% per year. Q3’s estimate was primarily influenced by positive contributions from private inventory investment, personal consumption (historically about 60% - 70% of economic activity) as well as growth in exports, non- residential fixed investment, residential fixed investment, and state and local government spending. The acceleration in real GDP has been a result of increased private inventory investment, slowing rate of imports, and an uptick in state and local government spending. S&P 500 & DJIA:. The S&P 500 was up 4.7% in Q3 ’13 compared to Q2 ’13, while the Dow Jones was up 2.4% during the same period. Year over year, the indexes are down 19% and 66% respectively Sources: Bureau of Economic Analysis, Yahoo! Finance
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Real M2 % Chg Real Velocity of Money % Chg. Real GDP % Chg % Chg GDP Price Deflator
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
GDP (s.a.) V/MC$
The top of this page illustrates an alternative measure of the components of US GDP. Total nominal GDP is comprised of the amount of money circulating multiplied by the velocity of that money (V$). V$ is the average number of times each dollar changes hands or is used to buy goods and services that make up GDP. The total value of money in the economy is measured as M2 by the Federal Reserve and includes checking deposits, currency and traveler's checks, time deposits, savings deposits, and money market funds less currency held by banks and currency and checking deposits of the government. V$ is calculated by dividing nominal, or real GDP, by nominal, or real M2. The bottom chart illustrates annual percentage changes represented in Real GDP from the BEA and real Visa and MasterCard (V/MC) bankcard dollar volumes, adjusted for inflation using the BEA’s GDP price deflator. Real GDP accelerated slightly to an annualized rate of 3.6% in Q3 2013 from 2.48% in Q2 2013 and 1.15% in Q1 2013. This occurred as the V$ and growth in real M2 came in at +1.4% and 2.2% respectively for Q3 2013. The change in V$ is up substantially from Q2’s -2.4% and is the first positive reading since Q3 2012. A year over year increase in V$ is a positive sign on the economic outlook as more transactions have occurred. Previous trends have shown that the latest recessions were preceded by multiple periods of contraction in the V$. Recent quarters have experienced unprecedented monetary expansion which, along with positive economic growth, have pushed $V into negative territories on an annual change basis for 3 of the last 4 quarters ending Q3 ‘13. Current levels of $V are hovering around their lowest point and are nearly 17% off the average since 1980. Growth in M2 has slowed in Q3 2013 to +4.2%, about 2 percentage points above the historical average of 6%. Growth in real V/MC volumes has regained its spot at rates above that of Real GDP after two consecutive lagging quarters in Q2 and Q3 2012, the only two on record dating back to the 1980s. Total V/MC volumes substantially outpaced that of real GDP in Q3 2013. This is likely attributable to the continued overall improvement in consumer’s financial positions and/or confidence levels. Source: Bureau of Economic Analysis, U.S. Federal Reserve, Visa, MasterCard
Macroeconomic Indicators Annualized % Change in M2 & Money Velocity
(Q1 2000 – Q3 2013, shaded areas indicate recession)
Annualized % Change in Real GDP & Bankcard Volume (Q1 2000 – Q3 2013, bankcard volume are V/MC credit & debit, shaded areas indicate recession)
Money Stock & Velocity and Card Volumes (Q1 2000 – Q3 2013)
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Macroeconomic Indicators
Small Business & Consumer Confidence
(Q1 2005 – Q3 2013)
Small Business Optimism: The National Federation of Independent Business (NFIB) conducts a monthly survey of the health of small businesses and is indexed to 100 as of 1986. The data in the chart are quarterly three month averages. Ten factors influence the trends in the index and include optimism, outlook, earnings, sales, prices, employment, compensation, credit conditions, inventories, and capital spending. Small business optimism has increased again in the most recent quarter, its highest since Q4 2007. However, looking at it monthly, October came in a couple points lower than September. Two components, the outlook for business conditions and the outlook for real sales gain, accounted for 52 percent of the Index decline. Consumer Sentiment Index: Though trending up as a quarterly average, the CSI for September slide to its lowest in five month as consumers saw higher interest rates and slow economic growth. Sources: nfib.com, University of MI/Thomson Reuters, Federal Reserve St. Louis
94.0
81.6
55
65
75
85
95
105
SBOI CSI
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$116,174 Real GDP/Employed
Employed Workers & Real GDP per Employed (Q1 2000 – YTD Q3 2013, workers in millions, shaded areas indicate recession)
136 Mill Workers
138 Mill Workers
Recessionary Periods Employment & Real GDP: Real output per employed worker rose in Q3 2013 to $116.1K per worker, a 0.5% increase from Q2 ’13, but a 0.2% drop from Q3 ‘12. Total non-farm employment in the public and private sectors increased by 459K on average from Q2 2013 through Q3 2013 while the unemployment rate dropped to 7.2% in September. Construction, wholesale trade, and transportation and warehousing grew in September, while employment in mining and logging, manufacturing, information, and government remained largely unchanged. The total long term unemployed persons (those without jobs for at least 27 weeks) was relatively unchanged at 4.1 million. These individuals made up nearly 37% of the total unemployed according to the BLS. According to recent job creation it would take nearly a year to reach pre-recessionary employment levels, flat from the last indicators report. Sources: BEA.gov, BLS.gov
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PPI CPI
87 84 85 86 88 90 91 92 93 93 94 95 97 97 97 98 99 99 100
70 68 69 70 72 74 75 76 76 76 77 77 78 78 77
78 78 78 78
Q1 Q2 Q3 2009
Industrial Production Index Industrial Capacity Utilization
Production, Utilization and Prices (Capacity Utilization in % of total capacity – quarterly average, PPI & CPI S.A. 12 mo. % change at end of Qtr.)
Production, Utilization & Prices (Q1 2009 – Q3 2013)
*CPI & PPI seasonally adjusted, the Industrial Production & Capacity Utilization indexes are monthly averages for the quarter
Macroeconomic Indicators
PPI & CPI: On a TTM basis, as of June 2013, the PPI has increased 0.3% while the CPI has increased 1.2%. Growth in these inflation measures has been fairly consistent since Q2 2012 with slightly above average deceleration in Q3 readings. Contraction on both the CPI and PPI has been largely attributed to energy prices, primarily gasoline among the CPI index. Excluding food and energy costs the CPI is up 1.7% over the last year. Industrial Production & Capacity Utilization: Industrial capacity utilization is up slightly in Q3 2013 and has increased every quarter since Q4 2012. Industrial production does not include service sector output, the largest component of the U.S. economy. Capacity Utilization has been very steady at an index of 78 which is just below the average dating back to 1972 of 80. Below average levels of utilization is likely to keep inflation rates below Fed target rates of around 2% which in turn will likely prevent the central bank from tightening monetary policies to any strong degree. Source: Federal Reserve, BLS.gov
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NMI: an index of non-manufacturing activity based on indicators with equal weights: business activity, new orders, employment and supplier deliveries.
Manuf. & Non-Manuf. Activity (Jun 2010 – Nov 2013)
PMI: an index of manufacturing activity based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
50% = Manufacturing Economy Breakeven Line
41.2% = Overall Economy Breakeven Line
55.3
Manufacturing & Non-Manufacturing Activity PMI NMI
Manufacturing: Activity in the manufacturing sector continued to accelerate for the sixth consecutive month in November 2013 after a dip below 50 in May, the first time a reading below 50 has been seen since November 2012. New orders, production, employment, and inventories were positive factors in the November reading, while supplier deliveries have slowed. 15 of the 18 manufacturing industries reported growth in November, the three industries that contracted are apparel, leather & allied products, wood products, and machinery. Non-Manufacturing: The non-manufacturing sector continued its trend above 50 at a higher pace in November 2013 with 11 of the 17 industries reporting growth. Survey respondents’ comments mainly point to steady growth and a positive future outlook . Among the 11 growing industries are transportation and warehousing as well as wholesale trade, typically indicative of rising activity levels. Source: Institute for Supply Management
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50 100 150 200 250 300 350 400
US New Home Sales (bars, by Region) & Construction Seasonally Adjusted Annual Rate (Thousands) Northeast Midwest South West
647
August 2011 Totals: New Home Sales: 292,000 Construction Starts: 647,000
August 2013 Totals: New Home Sales: 421,000
Construction Starts: 926,000
Macroeconomic Indicators
Revolving vs. Non-Revolving Credit Q1 2008 to Q3 2013
New Home Sales: Sales of new residential homes have been a bright spot in recent months, which have increased 13% from August 2012 to August 2013; and an increase of 8% from July 2013. However, the back- to-back readers were the weakest this year. Economists highlight the risk that the run-up in borrowing costs pose for the housing rebound, which has created growth over the past two years. New Home Construction: New home construction decreased approximately 10% in June 2013 from the year prior to an annual rate of 836,000, missing expectations of a 5% climb to 960,000. It is speculated that homebuilders were spooked by the rise in mortgage rates; however, in July homebuilder confidence surged to 57, one of several leading indicators for housing starts according to The National Association of Home Builders. Source: US Census, National Association of Home Builders, Business Insider, Bloomberg
Consumer Credit & Debt Service: The bar chart(s) represents the seasonally adjusted annualized percent change in outstanding consumer credit, both revolving and non-revolving credit types. The line chart represents the household debt service ratio which is the ratio of debt payments, including mortgage and consumer debt, to disposable personal income and is estimated by the Federal Reserve. Most notable for preliminary Q3 numbers it the contraction in revolving consumer credit outstanding, an indication that consumers paid off their credit card, and other revolving lines of credit, in Q3 2013. Growth in non- revolving consumer credit has been slowing since Q4 2011 but remains at well above average rates since 2008 due to the continued historically low interest rates. Debt service ratio is at its lowest level in the data presented as of Q1 2013 and is likely to continue its decline given the slowdown in both revolving and non- revolving credit balances. This is a positive for consumers’ personal budgets and free cash flow. Sources: BLS.gov, BEA.gov, Federal Reserve.gov
*Aug 2013 data is preliminary
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-12.5%
-7.5%
-2.5%
2.5%
7.5%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010 2011 2012 2013
Revolving consumer credit Non-revolving consumer credit
13.32
9.89
DSR
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Overall
Moderate expansion during the past six weeks, housing held steady, manufacturing grew moderately
Consumer Spending
Banking
Manufacturing
Steady demand to growing at a robust pace over the last few months
Fed’s Beige Book Regional Comments (Districts 1 - 6)
Current Economic Conditions by The Federal Reserve Board: Commonly known as the Beige Book, this report is published eight times per year, most recently on October 16, 2013. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. This and the following page are a graphical interpretation of each district’s report (selected information only). The ‘last report’ referenced (report prior to 10/16/2013) was released on September 04, 2013.
District #1: Boston
Retail
YOY sales vary between small decreases or increases, respondents worry about strength of recovery
Residential Real Estate
Housing sales continue to strengthen; cautiously optimistic about the future
District #2: New York
Retail
Sales steady and close to plan since the last report; consumer confidence up
Finance & Banking
District #3: Philadelphia
Retail
Modest growth overall, hiring plans for the holidays are equal or greater than 2012
Finance & Banking
Modest increases continue in loan volume, but a slight drop over the last report
Manufacturing
Significant rebound in orders and shipments for a modest pace of growth
District #5: Richmond
Retail
Merchants reported flat to slightly improved sales, however YOY had increased
Banking
Increased activity, demand for lending strong, no change in credit quality
Labor Markets
Slow expansion continued, manufacturing and non- retail service grew modestly
District #6: Atlanta
Retail
Labor Market
Manufacturing
Most reported pace of growth remained flat or rose slightly in September
Microeconomic Indicators
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District 11: Dallas
Overall Economic activity grew at faster pace over the past six weeks than previously
Labor Market Held steady or increased slightly at most firms
Retail Sales volumes held steady and were up YOY, Q4 outlook remains positive
Energy Little changed at high levels, margins for oil/gas services firms have tightened
District #7: Chicago
Manufacturing Slight production decreases, contacts remain cautiously optimistic
Business Spending
Consumer Spending
Modest growth in September, retailers expect holiday to be similar to 2012
District #10: Kansas City
Overall Modest expansion following a slightly faster pace in the previous report
Consumer Spending
Banking Loan demand stronger and improved loan quality
Agriculture Production expectations were unchanged, falling prices lowered income expectations
District #12: San Francisco
Overall Expanded modestly from late Aug. through early Oct., limited price pressures
Real Estate Housing demand advanced overall, commercial activity improved
Retail Aside from big-ticket items, retail sales were a bit soft
Manufacturing Overall growth during reporting period of late Aug. through early October
District #8: St. Louis
Overall Economy expanding at moderate pace; activity positive in sectors
Manufacturing Positive activity - plans to add workers, expand operations and facilities
Real Estate Home sales increased on a YOY basis, commercial and industrial improved
Agriculture 90% of land fair or better, at least 80% of pastureland good/excellent
District #9: Minneapolis
Consumer Spending
Increase in consumer spending since last report; tourism activity solid
Labor Market Market tightened since last report; moderate wage increases
Manufacturing Continued to expand, increased activity in Minnesota and the Dakotas
Microeconomic Indicators
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Current Economic Conditions by The Federal Reserve Board: Commonly known as the Beige Book, this report is published eight times per year, most recently on October 16, 2013. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. This and the following page are a graphical interpretation of each district’s report (selected information only). The ‘last report’ referenced (report prior to 10/16/2013) was released on September 04, 2013.
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*Beige Book reports are released 8 times per year resulting in approximately 6 week time periods for each report, not all reports from March 2009 through December 2011 are listed, only those at each quarter’s end
Microeconomic Indicators
Mar 2010
Jun 2010
Sept 2010
Dec 2010
Mar 2011
Jun 2011
Sept 2011
Dec 2011
Mar 2012
June 2012
Sept 2012
Dec 2012
Mar 2013
June 2013
Sept 2013
Below is a chart representing the overall movement in economic/business conditions in each of the Federal Reserve districts over the past 3 years
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Avg. Sales Volume: $35 Bil.
Avg. Change: +4.9%
Accessories Stores
Health & Personal
Care Stores
Electronics & Appliance Stores
Size of circle represents share of total retail sales
The chart below provides an overview of US Retail and Food Services, shown according to the twelve major NAICS codes. From October 2010 to October 2013¹, the two highest growth retail segments, excluding Gasoline Stations and Motor Vehicle & Parts Dealers, were Non-Store Retailers and Furniture & Home Furnishing. The two lowest growth retail segments for this period were Electronic & Appliance Stores and General Merchandise. Source: US Census 1: October 2013 data is advanced
Microeconomic Indicators
Retail Sales by Segment
Non-Store Retailers – mail order houses, vending machine operators, home delivery sales, door to door sales, party plan sales, electronic shopping, portable stalls (e.g. street vendors, excluding food), direct sales of products, such as home heating oil dealers and newspaper delivery. 81% of these non-store retailers were made up of electronic shopping and mail order houses as of December 2011.
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Microeconomic Indicators
An average of the quarterly year-over-year growth rate of sales for TSG’s 14 Standard Industrial Classification (SIC) codes representing the U.S. Market provides a high-level look at the economic climate in recent history. TSG feels the contraction in Q1 2013 can be largely attributed to the number of processing days in Q1 2013 vs. Q1 2012; there were 4% less days in Q1 2013. Same store sales growth in Q2 and Q3 2013 accelerated consecutively, each were nearly 1% above that of real GPD growth. Following pages illustrate same store sales trends among the fourteen SIC groups within TSGs 1.8 million SMB merchant acquiring database. Please see these links for more information on TSG’s MPPS: Overview / Ex. Report
U.S. Same-Store Sales (Q1 2010 – Q3 2013)
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0.38%
0 13
Same Store Sales of TSG’s MPPS Database: Average Total Growth Rates of All SIC Codes
(1.8M merchants; average of individual SIC groupings on following pages)
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Microeconomic Indicators
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17
The following charts show the quarterly year-over-year growth rate of each SIC group for each quarter from Q1 2010 through Q3 2013. In Q3 2013 only two of the fourteen SIC groupings experienced annual declines in same store sales volumes. Construction Services led the way with annual growth of nearly 11%, likely influenced by activity in the housing markets from historically low interest rates. Transportation services, Entertainment & Recreation, Grocery, Food & Liquor Stores and Health & Medical Services and Wholesale merchants all experienced growth rates at least 1.2x higher than average in Q3 2013. For more information on the divisions and inclusions of each code, please see this link: SIC Category Detail
-4%
-1%
3%
6%
Retail SIC 2
Home Furnishing, Supply & Auto SIC 6
Auto, Boat, & Mobile Home Dealers & Repair Shops SIC 5
Grocery, Food & Liquor Stores SIC 4
0%
5%
10%
15%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
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Microeconomic Indicators
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Retail sales, one of the largest categories, experienced its third consecutive quarter of contraction in Q3 2013. This may be an influence of relatively flat real wage growth and slow employment growth. Petroleum sales are down nearly 5% for the second consecutive quarter as gas prices touch lows not seen in nearly three years. Manufacturing has also been one of the slowest growing sectors in the recent quarters as the total change in durable and non- durable good among wholesalers’ was flat (0.5%) from Aug to Sept 2013. For more information on the divisions and inclusions of each code, please see this link: SIC Category Detail
Entertainment & Recreation SIC 10
Petroleum SIC 14
Manufacturing SIC 13
-10%
-3%
5%
13%
20%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
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$246 $250 $262 $244
$270 $277
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Credit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
(Visa fiscal year Oct – Sept, data in chart reported on normal year)
$122 $126 $115
$141 $144
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Credit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
1.5 1.5 1.4
Volume: Transactions:
Payment Type Mix: $ Volume (Visa and MasterCard’s Q3 ‘13)
Credit Debit
* % may not calculate due to rounding
2.4 2.5 2.3 2.6 2.7 2.8 2.6 2.9 3.0 3.1 2.8
3.2 3.3
Card Volumes
+7.5% 0.0%
Volume: Transactions:
07/24 – 07/31
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$266 $271
$282 $285
$300 $298
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Debit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
(Visa fiscal year Oct – Sept. Data displayed using normal year)
$79 $88 $93 $98 $97 $104 $111 $111 $110 $116 $119 $122 $123
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Debit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
7.3 7.5 7.3 7.8 7.8 7.8 7.5 7.2
7.4 7.5 7.5 8.0 8.1
33.7%
28.4%
66.3%
71.6%
0% 50% 100% 2.1 2.2 2.3 2.5 2.5 2.6 2.7 2.8 2.8 2.9 2.9
3.1 3.2
Card Volumes
+10.0% +9.5%
Volume: Transactions:
+11.8% +14.3%
Volume: Transactions:
Credit Debit
Payment Type Mix: # of Transactions (Visa and MasterCard’s Q3 ‘13)
07/24 – 07/31
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$81 $82
$86 $85 $87
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
MasterCard Visa
MasterCard:
$38 $38 $37 $37
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
MasterCard Visa
MasterCard:
Card Volumes
*Ave tickets may not match data in previous slides due to rounding * % may not calculate due to rounding
07/24 – 07/31
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274 269 267 256 258 261 263 265 270 273 277 278 280
172 172 171 170 173 175 176 176 176 177 178 178 177
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Visa - Credit MasterCard - Credit
MasterCard:
402 399 419 395 397 394 441 426 412 425 439 428 428
115 117 123 126 129 130 133 136 134 135 142 144 144
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Visa - Debit MasterCard - Debit
+7.5% +3.9%
+0.6% +3.7%
Card Volumes
07/24 – 07/31
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$741 $731 $662 $667 $658
$-
$150
$300
$450
$600
$750
$900
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Debit Vol./Crd - Visa Debit Vol./Crd. - MC
$745 $770 $809 $777 $868
$877 $901 $842
$926 $960 $881
$713 $792
$200
$400
$600
$800
$1,000
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Credit Vol./Crd - Visa Credit Vol./Crd - MC
Visa: MasterCard:
+4.0% +5.8%
Visa: MasterCard:
+7.0% +6.8%
Card Volumes
* % may not calculate due to rounding
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The Electronic Transactions Association (ETA) is an international trade association representing companies who offer electronic transaction processing products and services. The purpose of ETA is to influence, monitor and help shape the merchant acquiring industry by providing leadership through education, advocacy and the exchange of information. ETA's membership spans the breadth of the payments industry, from financial institutions to transaction processors to independent sales organizations (ISOs) and equipment suppliers. More than 500 companies worldwide are members of ETA. Please visit www.electran.org for more information.
The Strawhecker Group (TSG), founded in 2006, is a management consulting company focused on the global electronic payments industry. TSG clients include merchant acquirers/ISOs, issuers, the card brands, technology and mobile companies, processors, major merchants, bank specialty lenders and private equity firms, as well as banks and financial institutions. The TSG team consists of proven industry leaders with extensive experience leading companies through explosive growth periods, mergers and acquisitions, technology-driven strategies, and data-driven decision making within the Payments Industry. TSG’s Service Groups Payments Strategy - Payments Strategy encompasses the full spectrum of advisory services within the Payments Industry. The depth of these services is built on deep industry knowledge - the Partners and Associates of the firm have an average of over 20 years of industry experience. With clients from card issuers to merchant acquirers, TSG has the experience and expertise to provide real-time strategies. Transaction Advisory - Whether buying or selling, seeking investment funding, or planning your company’s exit strategy, TSG’s experience can be critical to achieving success. TSG has performed more than 100 Payments Company Valuation and/or Business Assessments in the past three years - ranging in value from $1 million to $1 billion. TSG Metrics - TSG Metrics, the strategic research and analysis division of TSG, provides the Payments Industry with highly focused research and industry-wide studies. TSG Metrics takes data, boils it down to information, transforms it to knowledge and presents it to provide wisdom to its client partners. Other recent TSG reports and analysis include (Click for more information):
For more information, contact TSG at [email protected] Subscribe to TSG's NewsFilter * PaymentsPulse.com * Follow TSG on Twitter * Follow TSG on LinkedIn * TheStrawGroup.com
About ETA
About TSG
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What Benefits Me By Paying a Credit Card
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Bob Loewens Director of Analytics – The Strawhecker Group [email protected] www.TheStrawGroup.com
© Copyright 2013. Electronic Transactions Association/The Strawhecker Group. All Rights Reserved.
US Economic Indicators Report
This report is a compilation and analysis of US economic data. Its intent is to provide a deeper understanding of the US economy and therefore, the ability for ETA members to better assess their position in the current economic climate. This is the 20th edition of the quarterly released report. Please reference cited sources for more detailed statistics. The views expressed are those of ETA/TSG and are subject to change. They are shared for educational purposes only. The information is based upon information we consider reliable, but its accuracy and completeness cannot be guaranteed. This report is a member benefit provided to the Electronic Transactions Association’s 500+ worldwide member companies.
With special introduction: Top Performing Merchant Verticals
Q3 2013 – 20th Edition
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INTRODUCTION: Top Performing Merchant Verticals for ISOs The table below displays the annual total volume growth (net of attrition, same store sales and new account volume(s)) and the ISO/Acquirer total net revenue rates for 14 SIC Categories containing “like” merchants. TSG has combined the hundreds of individual SICs residing in TSG’s database of 1.8 million merchants. SIC categories 10 (Entertainment & Recreation) and 11 (Construction Services) have had some of the more attractive growth patterns over the past five quarters and also have above average profitability, which is influenced by account size to a certain extent. SIC 9 (Health & Medical Svcs.) has had very stable growth rates in the mid teens and also has attractive profitability.
SIC Volume Stats Annual Total $ Volume Growth *ISO/Acquirer Total Net Revenue %
SIC Group
$ Vol. Share
Annual Vol/Acct
Avg. Ticket
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
1 21.4% $383,506 $26 17% 18% 13% 18% 15% 0.598% 0.610% 0.606% 0.640% 0.638%
2 12.9% $128,519 $92 1% 4% 4% 11% 7% 0.974% 0.971% 0.953% 1.029% 0.975%
3 15.7% $104,286 $138 7% 7% 5% 9% 12% 1.119% 1.139% 1.097% 1.156% 1.095%
4 6.5% $338,907 $31 11% 12% 8% 11% 14% 0.633% 0.622% 0.625% 0.674% 0.652%
5 5.6% $199,453 $85 8% 8% 7% 13% 12% 0.776% 0.812% 0.791% 0.791% 0.751%
6 6.0% $250,715 $189 11% 12% 8% 14% 13% 0.750% 0.770% 0.753% 0.765% 0.716%
7 9.2% $316,117 $358 24% 25% 22% 22% 13% 0.646% 0.676% 0.652% 0.700% 0.650%
8 5.7% $149,752 $107 19% 21% 9% 13% 9% 0.872% 0.975% 0.872% 0.988% 0.899%
9 7.8% $133,380 $130 11% 12% 10% 16% 14% 1.191% 1.221% 1.128% 1.196% 1.205%
10 3.4% $169,229 $53 28% 39% 30% 34% 31% 0.982% 0.987% 0.937% 0.967% 0.947%
11 2.6% $92,521 $608 14% 17% 22% 29% 25% 1.250% 1.320% 1.302% 1.307% 1.195%
12 1.6% $186,843 $159 10% 16% 20% 24% 30% 0.854% 0.904% 0.825% 0.847% 0.743%
13 1.2% $284,257 $208 9% 13% 13% 15% 11% 0.694% 0.762% 0.734% 0.745% 0.699%
14 0.4% $319,033 $69 12% 15% 9% 7% 0% 0.780% 0.761% 0.713% 0.799% 0.766%
Highest Value Lowest Value
SIC 1 SIC 2 SIC 3 SIC 4 SIC 5 SIC 6 SIC 7 SIC 8 SIC 9 SIC 10 SIC 11 SIC 12 SIC 13 SIC 14
Eating, Drinking & Hospitality
Entertainment & Recreation
Construction Services
Transportation Services
Manufacturing Petroleum
*ISO/Acquirer Total Net Revenue %: Sum of total bankcard and PIN net processing revenue and monthly and annual fees less other costs of sales as a percent of total volume
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Federal Reserve’s Beige Book: 12 District Overviews Page 12
Retail Sales by Segment from the Census Page 15
Total Same Store Sales from TSG Database Page 16
Same Store Sales from TSG Database by SIC Code Page 17
Credit Card Data Page 19
Debit Card Data Page 20
Credit/Debit Average Ticket Sizes Page 21
VISA/MC Credit & Debit Cards in Circulation Page 22
VISA/MC Volume per Card Page 23
Table of Contents
Acquisition Multiples Page 5
Payments Indicators
Card Volumes
Consumer Spending & Hourly Wages Page 7
Money Stock & Velocity Page 8
Real GDP & V/MC Volume Page 8
Employment & Real GDP / Labor Productivity Page 9
Manufacturing & Non-Manufacturing Activity / Industrial Capacity Utilization & Prices Page 10
New Home Sales by Region & Consumer Credit Page 11
Macroeconomic Indicators
Microeconomic Indicators
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TSGPX S&P 500
Payments Indicators: Payments Companies Vs. S&P 500 The chart below displays the performance of a $100 investment in an index of selected payments companies which represent the “TSG Payments Index” - this index is calculated on a value weighted basis using market capitalization and is compared to the S&P 500 which is also calculated using the same methodology. A $100 investment in the TSGPX in Q1 2007 would now be valued at $259, as compared to $118 if invested in the S&P 500.
VS.
+2.5% CAGR
The chart above displays the performance of $100 investment in an index of the following listed companies which represent the “TSG Payments Index” - this index is calculated on a value weighted basis using market capitalization and is compared to the S&P 500 which is also calculated using the same methodology. This analysis does not include affects of re-invested dividends. While some of the companies listed in TSG’s Payments Index do not meet the requirements to be a S&P 500 listed company (S&P listed companies have a market cap of at least $3 billion), the S&P 500 served to be the best comparable index to TSG’s Payments Index since it is one of the most commonly used benchmarks for the overall U.S. stock market. In fact, many consider it to be the definition of the market. The companies included in TSG’s Payments Index met the criteria that at least 50% of their revenues were produced from electronic payments products or services. Ingenico and Gemalto have been removed due to inclusion of NetSpend and Cardtronics as well as their being traded on non-US exchanges. As of Q4 2011 Fundtech has been removed due to an acquisition and Tier Technologies’ name has been changed to Official Payments. Vantiv was added to the index as of Q1 2012. 3PEA International was added in Q1 2013. LML Payment Solutions and Transaction Network Services were removed as of Q1 2013 due to acquisition.
+15.1% CAGR
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16% > 5.6x 16% < 1.00x
.05% > 6.0x .05% < 0.57x
Net Revenue Multiple (Annual)
• No sales channel/force included in sale • Stagnant or declining growth • High attrition ( > 20% per year) • Low net revenue margins • No merchant account portability
• No competitive sales strategy • High losses • Little or no profitability • Few cost synergies to buyer
Low Multiple Characteristics
• Sales channel/force included in sale • Solid sales growth ( > 10% per year) • Low attrition ( < 15% per year) • Solid net revenue margin • Strong management team
• Ease of merchant account portability • Sustainable strategy or market niche • Low losses • Good profitability • Good cost synergies to buyer • Technology
High Multiple Characteristics
Cost of the Transactions: • Interchange • Assessments and network fees • Residuals paid to sub-ISOs • Third Party Processing Costs
Net Revenue = Gross Revenue + Other Income – Cost of the Transactions
Other Income • Equipment revenue • Lease revenue • Additional service revenue • Monthly fees
Net Revenue Multiples: Three Year Rolling Averages
3.1 3.0 2.9
Red Plots = 2010 - 2013
Acquisition Multiples - Review of Payments Industry M&A Transactions - A Historical Perspective: Industry Enterprise and Merchant Portfolio Net Revenue Multiples
Timeframe: 2000 – 2013
Source: TSG internal records
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Payments Indicators: Attrition Summary The attrition figures (red bars) below are based on accounts producing net revenue in the same month a year ago and no longer producing net revenue in the same month a year later. Annual changes in the retained accounts’ volume processed (defined as non-attrited accounts) and net revenue generated are represented by the orange bars in the below charts. New accounts’ volume and net revenues are represented by the green bar charts. The blue charts are the ending total level of volume or net revenue as compared to the same time period a year ago; 113% for example in Q3 2013 for Ending Volume represents a 13% growth in total volume.
Net Revenue at Start of Period Net Revenue Gross Attrition Chg. in Ret. Acct Net Revenue New Net Revenue Added Net Revenue at End of Period
Merchant Portfolio – Average Net Revenue Attrition & Growth Performance
+4% +2% +4% +2%
-13% -12% -13% -14%
100% 100% 100% 100%
+22% +22% +28% +23%
113% 112%
Q3 2013Q3 2012Q3 2011Q3 2010
Volume at Start of Period Volume Gross Attrition Chg. in Ret. Acct Volume New Volume Added Volume at End of Period
Merchant Portfolio – Average Dollar Volume Attrition & Growth Performance
*Attrition rates based on active accounts only, numbers may not sum due to rounding
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-17% -17% -16% -19%
100% 100% 100% 100%
+20% +22% +28%
113% 121% 119%
Source: TSG internal database of 1.8 million merchants
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Macroeconomic Indicators
Trevor working
Real Annual Growth in Consumer Spending & Hourly Wages and Unemployment
(S.A. - Wage growth in excess of CPI % chg., Real PCE growth)
Real Wage Growth Real YOY % Chg. In PCE Unemployment %
Consumer Spending, Wages & Unemployment (Q1 2007 – Q3 2013)
Consumer Spending & Wages: Personal consumption expenditures, a measure of consumer spending, increased 1.5% in Q3 2013 compared to 1.8% in Q2 and 2.3% in Q1 2013. Furnishings and Durable Household Equipment as well as Recreational Goods and Vehicles both grew in the low double digits in Q3 while spending on Clothing & Footwear and Housing & Utilities decreased in the low-mid single digits. Goods spending has been the driving factor in PCE growth in recent quarters as services have been growing in the low single digits. Real wage growth remained in the black for the 3rd consecutive quarter, a positive for consumers financial condition. Based on recent trends in spending patterns it appears that consumers are opting to spend on Furniture, likely a side effect of the recovery in the housing market, and Recreational goods. Sources: BLS.gov, BEA.gov
GDP / S&P 500 / DJIA (Q1 2007 – Q3 2013)
GDP & S&P 500 Comparison (% Change From Previous Quarter)
GDP: Real GDP grew at a seasonally adjusted annual pace of 3.6% in Q3 2013 according to the “second” estimate from the BEA, an estimate that includes more complete data than advance estimates. That is an expansion from Q2 2013’s level of 2.5% and is above the typical target growth of around 2% to 2.5% per year. Q3’s estimate was primarily influenced by positive contributions from private inventory investment, personal consumption (historically about 60% - 70% of economic activity) as well as growth in exports, non- residential fixed investment, residential fixed investment, and state and local government spending. The acceleration in real GDP has been a result of increased private inventory investment, slowing rate of imports, and an uptick in state and local government spending. S&P 500 & DJIA:. The S&P 500 was up 4.7% in Q3 ’13 compared to Q2 ’13, while the Dow Jones was up 2.4% during the same period. Year over year, the indexes are down 19% and 66% respectively Sources: Bureau of Economic Analysis, Yahoo! Finance
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Q 1
Q 2
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2 0
0 0
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2 0
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Real M2 % Chg Real Velocity of Money % Chg. Real GDP % Chg % Chg GDP Price Deflator
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
GDP (s.a.) V/MC$
The top of this page illustrates an alternative measure of the components of US GDP. Total nominal GDP is comprised of the amount of money circulating multiplied by the velocity of that money (V$). V$ is the average number of times each dollar changes hands or is used to buy goods and services that make up GDP. The total value of money in the economy is measured as M2 by the Federal Reserve and includes checking deposits, currency and traveler's checks, time deposits, savings deposits, and money market funds less currency held by banks and currency and checking deposits of the government. V$ is calculated by dividing nominal, or real GDP, by nominal, or real M2. The bottom chart illustrates annual percentage changes represented in Real GDP from the BEA and real Visa and MasterCard (V/MC) bankcard dollar volumes, adjusted for inflation using the BEA’s GDP price deflator. Real GDP accelerated slightly to an annualized rate of 3.6% in Q3 2013 from 2.48% in Q2 2013 and 1.15% in Q1 2013. This occurred as the V$ and growth in real M2 came in at +1.4% and 2.2% respectively for Q3 2013. The change in V$ is up substantially from Q2’s -2.4% and is the first positive reading since Q3 2012. A year over year increase in V$ is a positive sign on the economic outlook as more transactions have occurred. Previous trends have shown that the latest recessions were preceded by multiple periods of contraction in the V$. Recent quarters have experienced unprecedented monetary expansion which, along with positive economic growth, have pushed $V into negative territories on an annual change basis for 3 of the last 4 quarters ending Q3 ‘13. Current levels of $V are hovering around their lowest point and are nearly 17% off the average since 1980. Growth in M2 has slowed in Q3 2013 to +4.2%, about 2 percentage points above the historical average of 6%. Growth in real V/MC volumes has regained its spot at rates above that of Real GDP after two consecutive lagging quarters in Q2 and Q3 2012, the only two on record dating back to the 1980s. Total V/MC volumes substantially outpaced that of real GDP in Q3 2013. This is likely attributable to the continued overall improvement in consumer’s financial positions and/or confidence levels. Source: Bureau of Economic Analysis, U.S. Federal Reserve, Visa, MasterCard
Macroeconomic Indicators Annualized % Change in M2 & Money Velocity
(Q1 2000 – Q3 2013, shaded areas indicate recession)
Annualized % Change in Real GDP & Bankcard Volume (Q1 2000 – Q3 2013, bankcard volume are V/MC credit & debit, shaded areas indicate recession)
Money Stock & Velocity and Card Volumes (Q1 2000 – Q3 2013)
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Macroeconomic Indicators
Small Business & Consumer Confidence
(Q1 2005 – Q3 2013)
Small Business Optimism: The National Federation of Independent Business (NFIB) conducts a monthly survey of the health of small businesses and is indexed to 100 as of 1986. The data in the chart are quarterly three month averages. Ten factors influence the trends in the index and include optimism, outlook, earnings, sales, prices, employment, compensation, credit conditions, inventories, and capital spending. Small business optimism has increased again in the most recent quarter, its highest since Q4 2007. However, looking at it monthly, October came in a couple points lower than September. Two components, the outlook for business conditions and the outlook for real sales gain, accounted for 52 percent of the Index decline. Consumer Sentiment Index: Though trending up as a quarterly average, the CSI for September slide to its lowest in five month as consumers saw higher interest rates and slow economic growth. Sources: nfib.com, University of MI/Thomson Reuters, Federal Reserve St. Louis
94.0
81.6
55
65
75
85
95
105
SBOI CSI
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$116,174 Real GDP/Employed
Employed Workers & Real GDP per Employed (Q1 2000 – YTD Q3 2013, workers in millions, shaded areas indicate recession)
136 Mill Workers
138 Mill Workers
Recessionary Periods Employment & Real GDP: Real output per employed worker rose in Q3 2013 to $116.1K per worker, a 0.5% increase from Q2 ’13, but a 0.2% drop from Q3 ‘12. Total non-farm employment in the public and private sectors increased by 459K on average from Q2 2013 through Q3 2013 while the unemployment rate dropped to 7.2% in September. Construction, wholesale trade, and transportation and warehousing grew in September, while employment in mining and logging, manufacturing, information, and government remained largely unchanged. The total long term unemployed persons (those without jobs for at least 27 weeks) was relatively unchanged at 4.1 million. These individuals made up nearly 37% of the total unemployed according to the BLS. According to recent job creation it would take nearly a year to reach pre-recessionary employment levels, flat from the last indicators report. Sources: BEA.gov, BLS.gov
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PPI CPI
87 84 85 86 88 90 91 92 93 93 94 95 97 97 97 98 99 99 100
70 68 69 70 72 74 75 76 76 76 77 77 78 78 77
78 78 78 78
Q1 Q2 Q3 2009
Industrial Production Index Industrial Capacity Utilization
Production, Utilization and Prices (Capacity Utilization in % of total capacity – quarterly average, PPI & CPI S.A. 12 mo. % change at end of Qtr.)
Production, Utilization & Prices (Q1 2009 – Q3 2013)
*CPI & PPI seasonally adjusted, the Industrial Production & Capacity Utilization indexes are monthly averages for the quarter
Macroeconomic Indicators
PPI & CPI: On a TTM basis, as of June 2013, the PPI has increased 0.3% while the CPI has increased 1.2%. Growth in these inflation measures has been fairly consistent since Q2 2012 with slightly above average deceleration in Q3 readings. Contraction on both the CPI and PPI has been largely attributed to energy prices, primarily gasoline among the CPI index. Excluding food and energy costs the CPI is up 1.7% over the last year. Industrial Production & Capacity Utilization: Industrial capacity utilization is up slightly in Q3 2013 and has increased every quarter since Q4 2012. Industrial production does not include service sector output, the largest component of the U.S. economy. Capacity Utilization has been very steady at an index of 78 which is just below the average dating back to 1972 of 80. Below average levels of utilization is likely to keep inflation rates below Fed target rates of around 2% which in turn will likely prevent the central bank from tightening monetary policies to any strong degree. Source: Federal Reserve, BLS.gov
Trevor working
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NMI: an index of non-manufacturing activity based on indicators with equal weights: business activity, new orders, employment and supplier deliveries.
Manuf. & Non-Manuf. Activity (Jun 2010 – Nov 2013)
PMI: an index of manufacturing activity based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
50% = Manufacturing Economy Breakeven Line
41.2% = Overall Economy Breakeven Line
55.3
Manufacturing & Non-Manufacturing Activity PMI NMI
Manufacturing: Activity in the manufacturing sector continued to accelerate for the sixth consecutive month in November 2013 after a dip below 50 in May, the first time a reading below 50 has been seen since November 2012. New orders, production, employment, and inventories were positive factors in the November reading, while supplier deliveries have slowed. 15 of the 18 manufacturing industries reported growth in November, the three industries that contracted are apparel, leather & allied products, wood products, and machinery. Non-Manufacturing: The non-manufacturing sector continued its trend above 50 at a higher pace in November 2013 with 11 of the 17 industries reporting growth. Survey respondents’ comments mainly point to steady growth and a positive future outlook . Among the 11 growing industries are transportation and warehousing as well as wholesale trade, typically indicative of rising activity levels. Source: Institute for Supply Management
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50 100 150 200 250 300 350 400
US New Home Sales (bars, by Region) & Construction Seasonally Adjusted Annual Rate (Thousands) Northeast Midwest South West
647
August 2011 Totals: New Home Sales: 292,000 Construction Starts: 647,000
August 2013 Totals: New Home Sales: 421,000
Construction Starts: 926,000
Macroeconomic Indicators
Revolving vs. Non-Revolving Credit Q1 2008 to Q3 2013
New Home Sales: Sales of new residential homes have been a bright spot in recent months, which have increased 13% from August 2012 to August 2013; and an increase of 8% from July 2013. However, the back- to-back readers were the weakest this year. Economists highlight the risk that the run-up in borrowing costs pose for the housing rebound, which has created growth over the past two years. New Home Construction: New home construction decreased approximately 10% in June 2013 from the year prior to an annual rate of 836,000, missing expectations of a 5% climb to 960,000. It is speculated that homebuilders were spooked by the rise in mortgage rates; however, in July homebuilder confidence surged to 57, one of several leading indicators for housing starts according to The National Association of Home Builders. Source: US Census, National Association of Home Builders, Business Insider, Bloomberg
Consumer Credit & Debt Service: The bar chart(s) represents the seasonally adjusted annualized percent change in outstanding consumer credit, both revolving and non-revolving credit types. The line chart represents the household debt service ratio which is the ratio of debt payments, including mortgage and consumer debt, to disposable personal income and is estimated by the Federal Reserve. Most notable for preliminary Q3 numbers it the contraction in revolving consumer credit outstanding, an indication that consumers paid off their credit card, and other revolving lines of credit, in Q3 2013. Growth in non- revolving consumer credit has been slowing since Q4 2011 but remains at well above average rates since 2008 due to the continued historically low interest rates. Debt service ratio is at its lowest level in the data presented as of Q1 2013 and is likely to continue its decline given the slowdown in both revolving and non- revolving credit balances. This is a positive for consumers’ personal budgets and free cash flow. Sources: BLS.gov, BEA.gov, Federal Reserve.gov
*Aug 2013 data is preliminary
11
-12.5%
-7.5%
-2.5%
2.5%
7.5%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010 2011 2012 2013
Revolving consumer credit Non-revolving consumer credit
13.32
9.89
DSR
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Overall
Moderate expansion during the past six weeks, housing held steady, manufacturing grew moderately
Consumer Spending
Banking
Manufacturing
Steady demand to growing at a robust pace over the last few months
Fed’s Beige Book Regional Comments (Districts 1 - 6)
Current Economic Conditions by The Federal Reserve Board: Commonly known as the Beige Book, this report is published eight times per year, most recently on October 16, 2013. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. This and the following page are a graphical interpretation of each district’s report (selected information only). The ‘last report’ referenced (report prior to 10/16/2013) was released on September 04, 2013.
District #1: Boston
Retail
YOY sales vary between small decreases or increases, respondents worry about strength of recovery
Residential Real Estate
Housing sales continue to strengthen; cautiously optimistic about the future
District #2: New York
Retail
Sales steady and close to plan since the last report; consumer confidence up
Finance & Banking
District #3: Philadelphia
Retail
Modest growth overall, hiring plans for the holidays are equal or greater than 2012
Finance & Banking
Modest increases continue in loan volume, but a slight drop over the last report
Manufacturing
Significant rebound in orders and shipments for a modest pace of growth
District #5: Richmond
Retail
Merchants reported flat to slightly improved sales, however YOY had increased
Banking
Increased activity, demand for lending strong, no change in credit quality
Labor Markets
Slow expansion continued, manufacturing and non- retail service grew modestly
District #6: Atlanta
Retail
Labor Market
Manufacturing
Most reported pace of growth remained flat or rose slightly in September
Microeconomic Indicators
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District 11: Dallas
Overall Economic activity grew at faster pace over the past six weeks than previously
Labor Market Held steady or increased slightly at most firms
Retail Sales volumes held steady and were up YOY, Q4 outlook remains positive
Energy Little changed at high levels, margins for oil/gas services firms have tightened
District #7: Chicago
Manufacturing Slight production decreases, contacts remain cautiously optimistic
Business Spending
Consumer Spending
Modest growth in September, retailers expect holiday to be similar to 2012
District #10: Kansas City
Overall Modest expansion following a slightly faster pace in the previous report
Consumer Spending
Banking Loan demand stronger and improved loan quality
Agriculture Production expectations were unchanged, falling prices lowered income expectations
District #12: San Francisco
Overall Expanded modestly from late Aug. through early Oct., limited price pressures
Real Estate Housing demand advanced overall, commercial activity improved
Retail Aside from big-ticket items, retail sales were a bit soft
Manufacturing Overall growth during reporting period of late Aug. through early October
District #8: St. Louis
Overall Economy expanding at moderate pace; activity positive in sectors
Manufacturing Positive activity - plans to add workers, expand operations and facilities
Real Estate Home sales increased on a YOY basis, commercial and industrial improved
Agriculture 90% of land fair or better, at least 80% of pastureland good/excellent
District #9: Minneapolis
Consumer Spending
Increase in consumer spending since last report; tourism activity solid
Labor Market Market tightened since last report; moderate wage increases
Manufacturing Continued to expand, increased activity in Minnesota and the Dakotas
Microeconomic Indicators
13
Current Economic Conditions by The Federal Reserve Board: Commonly known as the Beige Book, this report is published eight times per year, most recently on October 16, 2013. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. This and the following page are a graphical interpretation of each district’s report (selected information only). The ‘last report’ referenced (report prior to 10/16/2013) was released on September 04, 2013.
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*Beige Book reports are released 8 times per year resulting in approximately 6 week time periods for each report, not all reports from March 2009 through December 2011 are listed, only those at each quarter’s end
Microeconomic Indicators
Mar 2010
Jun 2010
Sept 2010
Dec 2010
Mar 2011
Jun 2011
Sept 2011
Dec 2011
Mar 2012
June 2012
Sept 2012
Dec 2012
Mar 2013
June 2013
Sept 2013
Below is a chart representing the overall movement in economic/business conditions in each of the Federal Reserve districts over the past 3 years
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Avg. Sales Volume: $35 Bil.
Avg. Change: +4.9%
Accessories Stores
Health & Personal
Care Stores
Electronics & Appliance Stores
Size of circle represents share of total retail sales
The chart below provides an overview of US Retail and Food Services, shown according to the twelve major NAICS codes. From October 2010 to October 2013¹, the two highest growth retail segments, excluding Gasoline Stations and Motor Vehicle & Parts Dealers, were Non-Store Retailers and Furniture & Home Furnishing. The two lowest growth retail segments for this period were Electronic & Appliance Stores and General Merchandise. Source: US Census 1: October 2013 data is advanced
Microeconomic Indicators
Retail Sales by Segment
Non-Store Retailers – mail order houses, vending machine operators, home delivery sales, door to door sales, party plan sales, electronic shopping, portable stalls (e.g. street vendors, excluding food), direct sales of products, such as home heating oil dealers and newspaper delivery. 81% of these non-store retailers were made up of electronic shopping and mail order houses as of December 2011.
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Microeconomic Indicators
An average of the quarterly year-over-year growth rate of sales for TSG’s 14 Standard Industrial Classification (SIC) codes representing the U.S. Market provides a high-level look at the economic climate in recent history. TSG feels the contraction in Q1 2013 can be largely attributed to the number of processing days in Q1 2013 vs. Q1 2012; there were 4% less days in Q1 2013. Same store sales growth in Q2 and Q3 2013 accelerated consecutively, each were nearly 1% above that of real GPD growth. Following pages illustrate same store sales trends among the fourteen SIC groups within TSGs 1.8 million SMB merchant acquiring database. Please see these links for more information on TSG’s MPPS: Overview / Ex. Report
U.S. Same-Store Sales (Q1 2010 – Q3 2013)
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0.38%
0 13
Same Store Sales of TSG’s MPPS Database: Average Total Growth Rates of All SIC Codes
(1.8M merchants; average of individual SIC groupings on following pages)
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Microeconomic Indicators
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The following charts show the quarterly year-over-year growth rate of each SIC group for each quarter from Q1 2010 through Q3 2013. In Q3 2013 only two of the fourteen SIC groupings experienced annual declines in same store sales volumes. Construction Services led the way with annual growth of nearly 11%, likely influenced by activity in the housing markets from historically low interest rates. Transportation services, Entertainment & Recreation, Grocery, Food & Liquor Stores and Health & Medical Services and Wholesale merchants all experienced growth rates at least 1.2x higher than average in Q3 2013. For more information on the divisions and inclusions of each code, please see this link: SIC Category Detail
-4%
-1%
3%
6%
Retail SIC 2
Home Furnishing, Supply & Auto SIC 6
Auto, Boat, & Mobile Home Dealers & Repair Shops SIC 5
Grocery, Food & Liquor Stores SIC 4
0%
5%
10%
15%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
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Microeconomic Indicators
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Retail sales, one of the largest categories, experienced its third consecutive quarter of contraction in Q3 2013. This may be an influence of relatively flat real wage growth and slow employment growth. Petroleum sales are down nearly 5% for the second consecutive quarter as gas prices touch lows not seen in nearly three years. Manufacturing has also been one of the slowest growing sectors in the recent quarters as the total change in durable and non- durable good among wholesalers’ was flat (0.5%) from Aug to Sept 2013. For more information on the divisions and inclusions of each code, please see this link: SIC Category Detail
Entertainment & Recreation SIC 10
Petroleum SIC 14
Manufacturing SIC 13
-10%
-3%
5%
13%
20%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
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$246 $250 $262 $244
$270 $277
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Credit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
(Visa fiscal year Oct – Sept, data in chart reported on normal year)
$122 $126 $115
$141 $144
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Credit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
1.5 1.5 1.4
Volume: Transactions:
Payment Type Mix: $ Volume (Visa and MasterCard’s Q3 ‘13)
Credit Debit
* % may not calculate due to rounding
2.4 2.5 2.3 2.6 2.7 2.8 2.6 2.9 3.0 3.1 2.8
3.2 3.3
Card Volumes
+7.5% 0.0%
Volume: Transactions:
07/24 – 07/31
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$266 $271
$282 $285
$300 $298
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Debit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
(Visa fiscal year Oct – Sept. Data displayed using normal year)
$79 $88 $93 $98 $97 $104 $111 $111 $110 $116 $119 $122 $123
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
US Debit Card Payments Volume & # of Transactions (Columns show Volume in $ Billions, Line shows # of Transactions in Billions)
7.3 7.5 7.3 7.8 7.8 7.8 7.5 7.2
7.4 7.5 7.5 8.0 8.1
33.7%
28.4%
66.3%
71.6%
0% 50% 100% 2.1 2.2 2.3 2.5 2.5 2.6 2.7 2.8 2.8 2.9 2.9
3.1 3.2
Card Volumes
+10.0% +9.5%
Volume: Transactions:
+11.8% +14.3%
Volume: Transactions:
Credit Debit
Payment Type Mix: # of Transactions (Visa and MasterCard’s Q3 ‘13)
07/24 – 07/31
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$81 $82
$86 $85 $87
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
MasterCard Visa
MasterCard:
$38 $38 $37 $37
Q3 2010 Q4 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013
MasterCard Visa
MasterCard:
Card Volumes
*Ave tickets may not match data in previous slides due to rounding * % may not calculate due to rounding
07/24 – 07/31
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274 269 267 256 258 261 263 265 270 273 277 278 280
172 172 171 170 173 175 176 176 176 177 178 178 177
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Visa - Credit MasterCard - Credit
MasterCard:
402 399 419 395 397 394 441 426 412 425 439 428 428
115 117 123 126 129 130 133 136 134 135 142 144 144
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Visa - Debit MasterCard - Debit
+7.5% +3.9%
+0.6% +3.7%
Card Volumes
07/24 – 07/31
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$741 $731 $662 $667 $658
$-
$150
$300
$450
$600
$750
$900
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Debit Vol./Crd - Visa Debit Vol./Crd. - MC
$745 $770 $809 $777 $868
$877 $901 $842
$926 $960 $881
$713 $792
$200
$400
$600
$800
$1,000
Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q1 Q2 2013
Credit Vol./Crd - Visa Credit Vol./Crd - MC
Visa: MasterCard:
+4.0% +5.8%
Visa: MasterCard:
+7.0% +6.8%
Card Volumes
* % may not calculate due to rounding
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The Electronic Transactions Association (ETA) is an international trade association representing companies who offer electronic transaction processing products and services. The purpose of ETA is to influence, monitor and help shape the merchant acquiring industry by providing leadership through education, advocacy and the exchange of information. ETA's membership spans the breadth of the payments industry, from financial institutions to transaction processors to independent sales organizations (ISOs) and equipment suppliers. More than 500 companies worldwide are members of ETA. Please visit www.electran.org for more information.
The Strawhecker Group (TSG), founded in 2006, is a management consulting company focused on the global electronic payments industry. TSG clients include merchant acquirers/ISOs, issuers, the card brands, technology and mobile companies, processors, major merchants, bank specialty lenders and private equity firms, as well as banks and financial institutions. The TSG team consists of proven industry leaders with extensive experience leading companies through explosive growth periods, mergers and acquisitions, technology-driven strategies, and data-driven decision making within the Payments Industry. TSG’s Service Groups Payments Strategy - Payments Strategy encompasses the full spectrum of advisory services within the Payments Industry. The depth of these services is built on deep industry knowledge - the Partners and Associates of the firm have an average of over 20 years of industry experience. With clients from card issuers to merchant acquirers, TSG has the experience and expertise to provide real-time strategies. Transaction Advisory - Whether buying or selling, seeking investment funding, or planning your company’s exit strategy, TSG’s experience can be critical to achieving success. TSG has performed more than 100 Payments Company Valuation and/or Business Assessments in the past three years - ranging in value from $1 million to $1 billion. TSG Metrics - TSG Metrics, the strategic research and analysis division of TSG, provides the Payments Industry with highly focused research and industry-wide studies. TSG Metrics takes data, boils it down to information, transforms it to knowledge and presents it to provide wisdom to its client partners. Other recent TSG reports and analysis include (Click for more information):
For more information, contact TSG at [email protected] Subscribe to TSG's NewsFilter * PaymentsPulse.com * Follow TSG on Twitter * Follow TSG on LinkedIn * TheStrawGroup.com
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