Visa Inc (V), Mastercard Inc (MA): Prep Your Portfolio for a Cashless Society

Society is digitizing everything from music to money. According to estimates from Euromonitor, mobile commerce is expected to grow a whopping 386% from 2012 to 2017, which translates into $400 billion worldwide.

A cashless future?
While it’s unlikely cash will ever be eliminated completely, cashless transactions will continue to increase. Visa Inc (NYSE:V) and rival Mastercard Inc (NYSE:MA) will benefit greatly from this trend. These two companies let banks issue debit and credit cards with their names on them, then collect a fee every time a transaction is made using that card. This is an ideal business model for a future with fewer cash transactions.

Visa Inc (NYSE:V)Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) operate in a duopoly, and together processed almost 60% of the $13.8 trillion of card transactions last year. Both companies have been growing rapidly as well.

V EPS Diluted TTM Chart

V EPS Diluted TTM data by YCharts.

The growth in both earnings and dividends is especially impressive when looking at the balance sheets of Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). Both companies carry billions in cash on their books, around $3.35 billion for Visa Inc (NYSE:V) and $5 billion for MasterCard. Neither carries any debt. Of the two, Visa is much larger, with a market cap around $119 billion, as opposed to MasterCard’s $80 billion.

The new way to pay?
Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) are looking to further eliminate the use of cash by introducing new technology platforms that will allow customers to make payments with their mobile devices — not only online, but also in physical stores. This may even eliminate the need to pull out a card. Visa is integrating its payment technologies into mobile devices with its Visa Ready Partner Program, and MasterCard has launched a similar platform called MasterPass.

Visa has separated itself from Mastercard Inc (NYSE:MA) by partnering with the world’s largest smartphone vendor by market share, Samsung . Samsung’s Galaxy S4 is the first mobile device preloaded with Visa Inc (NYSE:V)’s payWave app. This allows S4 users to make secure mobile payments from both local and global network operators.

The rise of m-commerce
Samsung is now the flagship phone for Visa, and both companies are looking to “step toward a global mobile payment platform,” according to Samsung’s Won-Pyo Hong. Samsung is not only a leader in smartphones, but also in adopting near-field communication, or NFC, into their devices. NFC is the vital technology that is mandatory for mobile payments to connect and work.

Very few devices other than those made by Samsung have utilized NFC, so it is a perfect partner for Visa. Samsung seems to know that mobile payments are a growth outlet and is seizing the opportunity to get the first-movers advantage. The company isn’t looking to stay married to Visa either, stating in a press release that “more payment applets from multiple brands are planned to be preloaded into the embedded secure element in the coming months.” It looks like Mastercard Inc (NYSE:MA) could be joining the party soon.