The credit card giants are hurting from the consequences of the covid-19 lockdown

American Express delivered their first quarter earnings yesterday, and the numbers were mostly good.

But the first quarter was mostly the pre-corona economy. They signalled to investors that there was trouble ahead - they set aside $1.7bn just in case things got worse later in the year.

They also reported that spending on travel and entertainment was down by 95%. This is bad news because this type of spending makes up 33% of spending on Amex cards.

Earlier, both Visa and Mastercard also announced that they expect second quarter spending to be lower due to lockdowns and border closures.

All these cards make their profits in several ways: they charge interest on credit card balances that are not cleared, they charge annual fees to the holder of the card, and most importantly, they charge retailers about 2% of the amount spent, as processing fees.

So if people are spending a lot less, they are earning a lot less in processing fees.

Meanwhile, for customers who are locked down and working from home, savings are accruing as they no longer have to pay for petrol, sandwiches at lunch and the other costs of having to venture out to the office. Some will be using these savings to clear their debts.

We may come out of this crisis with businesses like the credit card companies hurting, but on the other hand, savings increased and debt reduced in the section of the population that is able to work from home.