Russia Effect: Visa & MasterCard at Stake?

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The U.S. sanctions on Russia led to the suspension of purchase payment services by Visa Inc. (V) and MasterCard Inc. (MA) in some of the approved banks in that country. While the suspension has been withdrawn, Russia has decided to have its own domestic payment system within six months to become more self-dependent in the future.  

The Sanctions & Payment Suspension

Some Russian investors were sanctioned by the U.S. including co-owners of SMP Bank, Boris Rotenberg and Putin’s elder brother Arkady Rotenburg over the Crimean issue. Following these sanctions, Visa and MasterCard had terminated the service of credit card purchasing payment for some of the authorized banks in Russia, including Bank Rossiya and SMP Bank. Yuri Kovalchuk, the largest stake holder of Bank Rossiya, also had his name in the list of sanctions.

As a result, clients of these banks faced troubles. However, the cash withdrawal service was not included within the suspensions.

How Russia is Getting Ready?

For a long time, the Russian government had been discussing about introducing an electronic payment card for their citizens to carry on government related transactions like payment of tax, pension, etc. Reportedly, apart from these services, the government now wants to include private purchase payment in this particular card.

How Tough Is the Competition?

Both Visa and MasterCard are the dominating force in the global payment services arena. Visa provides its payment services in more than 200 countries. Almost flawless Internet security service has made Visa a popular choice among consumers, merchants and large number of organizations.

MasterCard has upgraded itself from time to time in order to improve its electronic and Internet secured payment services. This has helped it to acquire a notable portion of global card market.

Recently, both the payment service companies have collaborated to form a new cross-industry group that would emphasize on the EMV chip technology adoption in the U.S. and concentrate on tokenization, point-to-point encryption and other online and mobile channel security-related requirements. This would further enhance their security services.

Is the Backup Plan That Strong?

First of all, Russian citizens traveling outside will face trouble to access the payment system in foreign lands without Visa and MasterCard. It is also a fact that Russians are not active credit card users. As reported by Euromonitor International, in the country which has a population of 143 million, only 30 million credit cards are being circulated. Comparatively, circulation of 192 million debit cards in Russia shows that they prefer debit cards.

Now, these two American card giants hold the lion’s share of plastic card market in Russia. So it seems difficult for Russia’s planned domestic payment service to compete against these card giants.

The Impact on Visa and MasterCard

Even if Russia succeeds with its plan and curbs the market share of these bellwethers in the country, they should easily offset the loss with the increasing global demand for their plastic cards.

Earnings Prospects of Visa and MasterCard

Although both Visa and MasterCard hold Zacks Rank #3 (Hold) at this moment, they have strong growth estimates. The current year earnings growth estimates for Visa and MasterCard stand at 18.6% and 19.8%, respectively, compared with the expected industry growth rate of 13.7%. Moreover, the long-term growth rates are expected to be 17.2% and 17.7% for Visa and MasterCard, respectively, compared with the expected industry growth rate of 15.4%.

Stock That Warrant a Look

While investing in Visa and MasterCard should not disappoint, a secure bet would be Global Payments Inc (GPN) if you are interested in the Financial Transaction Services sector.

It deals with the electronics transaction services for banks, consumers and other financial institutions, among others. It operates in two sections: North America Merchant Services and International Merchant Services

Currently, Global Payments holds a Zacks Rank #2 (Buy). It has a current year growth estimate of 12.20% compared to industry growth estimate of 13.7%. It also has a strong long-term growth estimate of 11.2%. The company has current year earnings estimate of $4.09.

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