Visa Inc. is (V) and Mastercard Inc. (MA) are huge players in the credit services market with footprints all over the world. Both companies have secured a strong position globally, processing trillions of dollars in total payment volumes annually. Visa is the larger of the two entities with higher revenue, higher profitability, and higher valuation, but MasterCard is fast making its way to the top spot. The future growth prospects of companies are more important from the point of view of investors. Although it appears that both companies are enjoying positive results in the future, Mastercard appears to have higher growth prospects and opportunities.
I’d give Mastercard a slight edge over Visa because of the faster growth metrics, B2B initiatives, and Amazon-related opportunity.
Visa and Mastercard are two technology companies that connect consumers and merchants for digital transactions, and have been seen as competitors in the electronic payments sector for more than a decade. MasterCard had an IPO in 2006 with a share price of $39 and a market capitalization of $3.7 billion, while Visa had an IPO in 2008 at $44 and a market capitalization of $17.9 billion. They are priced at $322 and $196, with market caps of $316.5 billion and $414 billion, respectively. These are over 8x and 4x growth rates in stock price and more than 85x and 23x market capitalization over a 15-year margin.
Both companies have a very similar business model where instead of issuing cards directly, they partner with institutions like banks to issue their cards. The V and MA are in the top 20 of the S&P 500 Index, but the historical numbers are only a measure of past performance; To expand on the value of their stock in the future, let’s delve into the prospects for each entity.
Financial performance and growth
While this article focuses on the future of both companies, I feel the need to provide a brief overview of their financial performance and how it relates to their assessment to better understand the information presented later in the article.
Visa generated a net profit of $21.8 billion for 2020, and that number rose to $24.1 billion in 2021; An increase of 10%. On the other hand, MasterCard generated total net revenue of $11.2 billion for the 9 months ending September 2020 and $13.7 billion for the same period in 2021, with revenue growth of 22%. Despite higher revenue, the high number of Visa shares translates into earnings per share of $10.74 (30.30% YoY growth), while MasterCard earnings per share are $17.87 (31.88% YoY growth).
Similarly, diluted earnings per share for the subsequent twelve months (TTM) expired in September 2021 for Visa and Mastercard of $5.63 and $8.13, and $1.64 and $2.44 for the three months ending September 30, 2021, respectively.
In terms of profitability, Visa’s operating and net profit margins for the quarter ending September 2021 were 65.80% and 54.64%, while MasterCard’s margins for the same quarter were 55.43% and 48.53%, respectively.
Judging by these metrics alone, even though Visa is currently more profitable than Mastercard, Mastercard’s earnings growth should be considered when making an investment decision. Mastercard is the smaller of the two entities and has more room for growth in the industry, which it certainly does.
Among its new and innovative plans, MA introduced the Buy Now Pay Later (BNPL) Mastercard Installment Program in September 2021, which provides customers with an option when paying. Moreover, in the spring of 2022, Mastercard plans to open a “Sustainability Innovation Lab” in Stockholm to create climate-smart products. Finextra stated that “the lab will explore how MasterCard can apply technologies such as 5G, quantum, and advanced artificial intelligence to address environmental challenges. It will consist of a research and development center focused on technology for sustainable consumption and value chains.”
According to the Future of ESG tech 2022 report, “The Mastercard Farmer Network, part of the company’s broader ‘Lab for Financial Inclusion’ commitment to connect one billion people to the digital economy by 2025, is a platform that digitizes markets, payments workflows and history. Finance for farmers in the agriculture sector. As it is deployed in East Africa and India, the platform is designed to support smallholder farmers who are critical to developing economies around the world.”
However, Visa is also not far behind in such endeavors. This month, Visa announced the launch of the “Visa Eco Benefits” package, which it plans to roll out in 2022. The package is designed to offer sustainability-focused benefits to account issuers. This is a unique offering that puts Visa in the driving seat to promote sustainable trade and climate action in the payments industry. According to Finextra, the Visa Eco Benefits package includes “fintech company Ecolytiq’s carbon footprint calculator, the ability to allow cardholders to offset carbon, educational tools, sustainable card materials, donations to environmental groups, and cardholder rewards for sustainable behavior.”
It is very difficult to judge a company’s prospects based on its plans based solely on its current innovative advertising. However, I will have to give Visa an edge in this criterion because of their Visa Eco Benefits program. However, Mastercard may invent something to outperform Visa because its track record is exemplary, especially as MA is investing more in the business division of the industry, which appears to have a lot of opportunities coming in the future.
There’s no denying that Amazon (AMZN) is a retail giant with footprints all over the world, and the credit card companies it partners with enjoy huge transaction benefits. However, more recently, Amazon made clear its issues with Visa regarding high transaction fees in a public statement, “The cost of accepting card payments remains an obstacle for businesses striving to provide the best rates to customers. These costs should continue over time as developments evolve. We are sorry that Amazon.co.uk will no longer accept UK Visa credit cards from 19 January 2022. Customers can continue to use all debit cards (including Visa debit cards) and non-Visa credit cards to shop on Amazon.co.uk With the rapidly changing payments landscape around the world, we will continue to innovate on behalf of customers to add faster and cheaper payment options and more comprehensive access to and promotion of our stores worldwide.”
This gives Mastercard a good opportunity to replace the “Amazon Rewards Visa Card” (a co-branded Amazon and Visa credit card), which, in my opinion, could secure Mastercard a very strong holding in a market where Visa is outdone by its sheer size and network . If the issues between Amazon and Visa are resolved, Mastercard will have no downside. However, the possibility of this happening in Mastercard’s favor puts a sharp uptrend in perspective.
Both companies are giants in the credit card industry, offering stable returns over the long term when viewed from an eagle eye perspective. In comparison, actions for innovation and future growth will determine which companies perform better, compared to others.
As of today, both companies are showing a strong uptrend to deliver positive future returns, but being a smaller company than Visa and outperforming competitor growth metrics seems to be playing in Mastercard’s favour.