What happened

Shares of various financial tech and e-commerce companies have jumped today after Visa (V -0.34%) disclosed some encouraging data regarding U.S. payments volumes, spurring hopes that the economy is starting to recover. That's good news for financial companies that process payments and issue credit cards as well as e-commerce companies that sell consumer-discretionary items online. Here's how several prominent stocks closed out the day:

  • Overstock (BYON 3.69%): up 12%.
  • Discover Financial (DFS 0.57%): up 5%.
  • Square (SQ 4.08%): up 6%.
  • Capital One Financial (COF 1.73%): up 3%.
Customer paying for merchandise using a Square terminal.

U.S. spending is starting to recover. Image source: Square.

So what

In a regulatory filing, Visa said that total U.S. payments volumes declined 5% year over year in the month of May, a meaningful improvement from the 18% decline experienced in the month of April. Investors are encouraged by the month-over-month improvement of 13 percentage points.

In May, debit transactions increased by 12% while credit transactions fell by 21%, a trend that Visa attributed to the distribution of stimulus payments. Those payments were part of the CARES Act that Congress passed in an effort to brunt some of the economic impacts of COVID-19, which had shut down broad swaths of the economy with stay-at-home orders.

Visa also highlighted how certain spending categories fared last month, with food, home improvement, and retail services growing 20%. On the other end of the spectrum, restaurants, entertainment, and travel all saw payments volume decline 20% to 40% (or more).

Now what

Overstock has previously said that its home furnishing product category is seeing strong demand amid the pandemic, while e-commerce companies are broadly seeing a spike in sales as people shop from the safety of their homes. "Our principal offerings, home furnishings, are increasingly in demand," CEO Jonathan Johnson said on the earnings call last month. "Home goods are one of the most relevant categories under the current stay-at-home mandates."

Much of Square's merchant base consists of small and local businesses that have been disproportionately impacted by lockdowns -- 75% of Square's sellers process $500,000 or less per year in gross payment volume. The company is also participating in the distribution of funds through the government's Paycheck Protection Program (PPP) that is designed to help small businesses.

Credit card issuers Discover and Capital One both swung to net losses in the first quarter, in part due to increased reserves for loan losses and net charge-offs. Financial companies estimate how much they expect to lose from uncollectible loans based on a variety of factors. Separately, Capital One yesterday also announced an all-cash tender offer to purchase up to $7.55 billion worth of outstanding notes with maturities ranging from 2021 to 2026.