The Financial Transaction Services industry has performed strongly in the first half of 2019. This growth momentum should have continued in the third quarter on the back of higher consumer spending, led by a strong labor market, increase in online and e-commerce sales, rise in disposable income and an upbeat consumer environment.
The industry is placed within the top 33% of the 16 Zacks sectors and has rallied roughly 23.6% in the past year, outpacing the S&P 500 composite’s growth rate of approximately 7.3% and the Business Services Market’s rise of 12.2%.
Moreover, the industry is also poised well for growth as it expects holiday retail sales during November and December to beat the 2018 mark and rise between 3.8% and 4.2% per the National Retail Federation (NRF). Further, a cut in the benchmark interest rate will ramp up investment activities and also reinforce consumer spending to work in favor of the companies.
Most players in the Financial Transaction services industry delivered solid numbers in the first six months of 2019, mainly owing to higher revenues, expanded payments volume, cross-border volume and processed transactions, gross dollar volume plus gains from acquisitions.
Now let’s take a look at the major factors that might have an impact on third-quarter results.
Factors Likely to Drive Q3 Results:
Shift to Alternative Payment Medium: More and more consumers are moving from cash modes to safer and faster payment mediums, such as debit or credit cards, online payments, mobile payments, etc. We believe, the spurt in online and e-commerce sales is likely to have increased the usage of alternative modes of payments, thereby benefiting the leading players. Some of the most common modes for online shopping are PayPal, Amazon Pay, Google Pay, American Express cards, Apple Pay, Stripe, Square, Visa Checkout, Masterpass et al. Per Statista, total transaction value in digital payments is expected to witness a CAGR of 8.6% during the 2019-2023 period.
Also, rise in retail sales is likely to have contributed to the payments industry as consumers are increasingly opting for this alternative payment mode, which provides superior, cost-effective, secured service to customers.
Better Payment Options: With new product innovations by the companies on the back of advanced technologies, such as distributed ledger technology, cryptocurrencies, IoT, blockchain, etc., customers now get a lot of payment options at their disposal. All these initiatives are expected to have perked up sales for the payments companies in the third quarter of 2019.
The companies have been also adopting measures to ease the current barriers in the payments industry. For example, Discover Financial Services’ DFS payment brand Discover Global Network tied up with Verve, a market-leading payments technology company, to launch the Verve Global Card, which will allow cardholders to use their Verve Global Cards on the Discover Global Network that will enable acceptance at multiple merchants worldwide.
Data Analytics: The industry players are also resorting to data analytics to enrich customer experience. The advanced data analytics is also assisting the companies to understand the financial risks and study customer choices plus preferences. Real-time transaction graph helps providers control service levels, manage inventory, etc. The industry leaders are thus staying abreast of the technical breakthroughs to strengthen their competitive edge.
We are therefore optimistic about an overall positive performance from the sector in absence of any significant headwind.
Potential Q3 Outperformers
With the help of our Zacks Stock Screener, we have identified a few stocks poised to outshine the Zacks Consensus Estimate in third-quarter performance. These stocks have the ideal combination — a positive Earnings ESP and a top Zacks Rank — to likely surpass expectations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alliance Data Systems Corporation ADS provides data-driven marketing and loyalty solutions to customers across the globe. It is a private label credit card processing company for mid-market specialty retail stores in the United States. It provides transaction, marketing and credit services in the United States, Canada and internationally.
Zacks Rank #3 (Hold)
Earnings ESP: +1.34%
Equifax Inc. EFX offers information solutions and human resources business process outsourcing services. The company managed to beat on earnings in the last three quarters, the average positive surprise being 2.77%.
Zacks Rank of 3
Earnings ESP: +1.08%
Fiserv, Inc. FISV provides financial services technology solutions to more than 12,000 clients worldwide in the banking, insurance, healthcare and investment industries. The company caters to banks, credit unions, leasing and finance companies, investment management firms, billers, retailers, and merchants. The company’s earnings trumped estimates in the last two quarters, the average beat being 2.47%.
Zacks Rank #2 (Buy)
Earnings ESP: +3.36%
WEX Inc. WEX is headquartered in South Portland, ME, and is a leading provider of payment processing and business solutions across a wide spectrum of sectors including fleet, travel and healthcare. The company managed to deliver average four-quarter beat of 1.73%.
Zacks #3 Ranked
Earnings ESP: +1.24%
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