San Francisco-based Visa Inc. V is undoubtedly a pioneer in the global card transaction processing industry. The company has benefitted from a secular shift in cash to plastic payment. Now, Visa provides processing services to over 30 million merchants around the globe. Roughly 1.8 billion Visa-branded cards are currently in circulation, with total annual purchase volume of around $4.5 trillion.
Nevertheless, the company is facing a number of headwinds that include consumer spending fluctuation, regulatory and litigation risks, currency fluctuations, international travel fluctuations, alternative payment systems, pricing pressure and acquisition integration risk.
Among these, the worst threat facing the stock is the development of alternate forms of payment as the industry is shifting from plastic to mobile and now Internet-based payments. Some of the latest forms include developments in smart cards, eCommerce, mobile, radio frequency and proximity payment devices such as contactless cards. Technology has permeated into in the payments’ industry where customers don’t even need a physical credit card to spend money –– a smartphone with an app is all that it takes.
With over six billion mobile phone subscriptions worldwide and more than one billion smartphones in the market, mobile payments are gaining increased acceptance against the bulky plastic cards which also carry the risk of loss or theft.
According to Statista, mobile spending in 2015 will hit $431 billion globally, and by 2017 this figure will increase to more than $720 billion. This industry is expected to grow in the U.S. from $50 billion in 2014 to nearly $150 billion by 2019, according to research firm Forrester.
Google, PayPal, Square, American Express, MasterCard and Visa, among others, have all developed mobile payment platforms.
The introduction of apps like Google Pay, Apple Pay and Samsung Pay has given a boost to the mobile payments’ space. BI Intelligence estimates that the number of people making a mobile payment at least once a year will grow from nearly 8% of the U.S. consumer population in 2014 to 65% by 2019.
Social Media Payments
Facebook recently launched a payments’ feature on Messenger, allowing Facebook friends to send one another money through the app. Customers also can pay for a product not in money but by sharing the details of the products and tweets that would contribute to in online marketing thereby help the retailer to reach a wider section of potential customers, rendering greater value than the price of the product.
Banking apps are now become common since most banks allow the card-less cash facility. JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Capital One, and others are building their own mobile payments apps.
The trend is also reflected at a number of retailers like McDonald’s, KFC, Burger King and Subway that use cloud-based mobile wallet apps, enabling card-less transactions.
However, it will not take long for the cards to lose appeal to the more convenient card-less payments’ form. While Visa’s contribution to the cash-less payment form cannot be ignored, its Zacks Rank #4 (Sell) points to the technological challenges on its growth path.
So until Visa revamps its business to catch up with the times, let’s take at some stocks that are going with the tide.
Stocks to Consider
Heartland Payment Systems, Inc. HPY with a Zacks Rank #2 (Buy) and long-term expected EPS growth of 13.5%, provides payment processing services in the United States. It offers end-to-end electronic payment processing services to merchants by facilitating the exchange of information and funds between them and cardholders financial institutions; and undertakes merchant set-up and training, transaction authorization and electronic draft capture, clearing and settlement, merchant accounting, merchant assistance and support, and risk management services.
Fiserv Inc. FISV with a Zacks Rank #2 and an expected long-term EPS growth rate of 11.95%, provides financial services technology worldwide. The company provides debit, credit, and prepaid card processing and services; electronic bill payment and presentment services; Internet and mobile banking software and services; person-to-person payment services; and other electronic payments software and services.
Total System Services, Inc. TSS with a Zacks Rank #2 and an expected long-term EPS growth rate of 12.73%, provides electronic payment processing services to banks and other financial institutions in the United States, Europe, Canada, Mexico and internationally. The company offers account processing and output services, including processing of the card application, initiating service for the cardholder, processing card transaction for the issuing retailer or financial institution, and accumulating the accounts’ transactions.
PayPal Holdings PYPL carrying a Zacks Rank #3 (Hold) and an expected long-term EPS growth rate of 17.5% was an early entrant in the mobile payments space. It spun off from eBay in July and thereafter started trading on Nasdaq. The company is about to close the acquisition of Xoom Corp., which will make it a dominant player in the mobile payments’ space.
PayPal is gearing up to make a mark for itself in the fast-growing digital payment space and to this effect has bought two companies, Venmo, a person-to-person money transfer and digital wallet service; and Braintree, a service that allows small merchants to accept Apple Pay, credit cards, and other money transfer services. Both services doubled their transaction volumes in 2014.
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