We recently compiled a list of 10 Best Digital Payments Stocks To Buy Now. In this article, we will look at where Discover Financial Services (NYSE:DFS) ranks among the best digital payments stocks to buy now.
Digital Payments Industry: An Analysis
It was the global pandemic that catalyzed the contactless ways of payment around the world. As physical stores shut down, digital payment methods became the norm with shoppers looking for a less personal and more digital interaction. According to a poll by the digital payment leader Mastercard, more than half of Americans opted for some form of contactless payment such as tap-to-go credit cards and mobile wallets amid COVID. The trend has continued and is here to stay since more than two in every three in-person transactions globally on Mastercard’s network were reported to be contactless in 2023.
McKinsey’s 2023 Digital Payments Consumer Survey reveals that online purchasing took the lead among all other kinds of digital payments among consumers. With the return of in-person shopping, using a device to pay at retail places by scanning a bar code with it or tapping it on a point-of-sale device, also known as in-store digital payments, has grown. Simultaneously, the in-app digital payments and peer-to-peer payments have risen since 2021. This reflects the already mainstream consumer digital payments which are and will continue to evolve.
The other market which tends to be highly addressable and promising is the B2B digital payments market with businesses looking for more ways to drive efficiency and engage in cross-border business transactions. This market was valued at $1.69 trillion in 2023 and is expected to grow at a compound annual growth rate of 9.38% from 2024 to 2033, as reported by Brainy Insights. Global Payments CEO, Cameron Bready, mentioned B2B payments as the next frontier for payments, with significant growth in the digitization of B2B payments. In an interview with CNBC, he emphasized this big opportunity by predicting the B2B market to be 3 to 4 times the size of the consumer market. According to him, this market remains highly fragmented and under-penetrated.
Our Methodology:
We first used a stock screener and mobile payments ETFs to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best digital payments stocks to buy now have been arranged in ascending order of their hedge fund holders as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Discover Financial Services (NYSE:DFS)
Number of Hedge Fund Holders: 68
Discover Financial Services (NYSE:DFS) is a digital banking and payment services company. Discover Global Network is the global payments brand of the company which offers network services across the payments ecosystem and facilitates billions in volume annually. To facilitate a seamless payment experience, this brand provides cardholders with global acceptance and cash access. Through its banking business, the firm provides personal loans, home loans, checking and savings accounts, and certificates of deposit.
With 70 million merchant acceptance points in over 200 countries and territories, Discover Financial Services (NYSE:DFS) has successfully built a rare and valuable global payments network. The company shows the continued strength of its underlying operating model through its segments, Banking and Payments. The firm’s fiscal second quarter witnessed loan growth, higher non-interest revenue, and higher net interest margin. In payment services, the pre-tax income was up $207 million year-over-year while payments services volumes increased 11% since 2023. In digital banking, pre-tax income rose $694 million while total loans increased 8%, year-over-year.
The company’s merger with Capital One is also underway with the progressing regulatory approval process in connection with the merger applications. This merger will bring two strong brands together that have a long track record of attractive and resilient financial results. It will also enable the Discover network to be more competitive with the biggest payments networks and payments companies while fulfilling Capital One’s quest to build a global payments company.
As of Q2, Discover Financial Services (NYSE:DFS) is held by 68 hedge funds and ranks among the 10 best digital payment stocks to buy now. Brave Warrior Capital is the largest shareholder in the company.
Overall DFS ranks 6th on our list of the best digital payments stocks to buy. While we acknowledge the potential of DFS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than DFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.