With the popularity of using credit cards and debit cards instead of cash and checks; payment processing companies like Visa Inc (NYSE:V), Mastercard Inc (NYSE:MA) and Discover Financial Services (NYSE:DFS) are seeing more revenue from their payment solutions then ever before. As the US and world economies are still recovering from the economic crisis that began in 2008, now is a great time to invest in one of these three stocks that will see both domestic growth from increasing consumer spending and international growth as countries become more developed and begin moving away from paper currency.
Overview of Key Players
Visa Inc (NYSE:V) is a very recognizable brand name across the world with a global network of payment processing technology. Their technology connects consumers with businesses with fast, easy and secure payment options in more than 200 countries and territories. Visa’s revenue is derived from fees charged to its clients for transactions and dollar volume. Visa does not issue cards or extend credit, they simply enable the consumer to process the transaction through their network. According to Visa, 70% of their transactions in the United States are debit and prepaid, not credit. Visa had 23% revenue growth outside of the US and Europe and 14% year-over-year revenue growth from 2011 to 2012. This proves the point the greatest opportunity for these stocks is international.
Much like Visa, Mastercard Inc (NYSE:MA) is a global payment and technology company that enables businesses and merchants to receive secure digital electronic payments instead of cash or check. They offer their customers the ability to have debit, credit, prepaid or other related products. MasterCard provides its products in more than 210 countries and territories. According to MasterCard’s 2011 annual report the stock had 21.2% growth in charge programs outside of the US and 31.8% growth in debit and prepaid programs from 2010 to 2011. This shows that the future revenue growth will be derived from outside the US. MasterCard also reported 18.3% year-over-year transaction growth.
Discover Financial Services (NYSE:DFS) differs from Visa and MasterCard in the fact that they not only offer payment services, but they also operate as a bank holding company and a financial holding company. They have a credit card network called PULSE, ATM’s, debit and electronic funds transfer network and Diners club (Discover’s global payment network). Discover’s banking segment offers loans and deposit accounts and various baking services common to bank companies. Discover pays the strongest dividend at 1.4% with the other two being less than 1%. According to Discover’s presentation in November, 2012 they are the largest credit card issuer in China, India and Russia. This will help with revenue growth internationally in the future.
From the chart above you can see that Visa has had the strongest and most consistent revenue growth of the three.
From this chart you can see Visa jumped up ahead of the others early and then slowed as Discover and MasterCard showed strong growth. MasterCard was the only one to have a reported loss through this period.