Falling Oil Prices and the Trickle-Down Effect on the Payments Industry
It was only a short time ago when gas prices were approaching $4/gallon and automobile manufacturers were racing to make the transition to smaller vehicles with electric / hybrid power. The political instability in oil-producing regions of the world seemed destined to cast a permanent cloud of uncertainty over oil prices. Retailers were pointing to higher gas prices crowding out discretionary spending and airlines were getting hammered by high fuel costs. Fast forward to early 2015 and oil prices have been on steady decline, as can be seen in Figure 1.
As companies in the payments industry reported their fiscal year 2014 results, the impact of falling oil prices was a common theme in their disclosures and statements to investors. There are a lot of puts and takes associated with falling oil prices. At the extreme, there are companies and individual portfolios with significant exposure to the price of oil. Fleet card specialists such as FleetCor and WEX have revenue models that are tied in part to fuel sales, although they also offer a range of fee-based services. In the private label credit card space, a single-purpose oil card is fully indexed to the price of gasoline and purchase volume would move in lockstep with the price of oil. Of course, the impact of falling oil prices on any one card issuer, acquirer or other stakeholder would be a function of their exposure to the oil segment as a whole.
In Figure 2, we compiled commentary on the impact of falling oil prices from various payments companies on Q4 2014 earnings calls.
Figure 2: Q4 2014 Oil Price Commentary by Payments Companies
For more information, please contact John Grund, Partner, specializing in Credit Card Issuing, firstname.lastname@example.org; or Brian Rutland, Associate, specializing in Commercial Payments, email@example.com.
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