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Will Higher Holiday Sales Aid Visa's (V) U.S. Payment Volumes?

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Zacks Equity Research
·4 min read
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As a leading payment facilitator, Visa Inc. V has been gaining from a shift in payment mode from physical to online and digital platforms. Though the transition to electronic payment has been consistent from the past many years, the COVID-19 episode further accelerated this trend.

Per the National Retail Federation (NRF) forecast, the 2020 holiday sales season is expected to be very strong. Additionally, since most people are doing much of their shopping online this holiday season, Visa’s U.S. transaction volumes are likely to witness a surge in the first quarter of fiscal 2021.

On Nov 27, Adobe Analytics reported that online spending during Thanksgiving rose 21.5% year over year to reach a new record of $5.1 billion. Last year, online sales raked in $4.2 billion. On Dec 1, Adobe Analytics reported that people spent $10.8 billion shopping online on Cyber Monday, reflecting an upside of 15.1% year over year. This makes it the single-largest shopping day ever. As more and more people shop and pay online, the usage of branded cards will increase the number of transaction processed  and aid top-line growth  from the U.S.  segment.

Business from the United States has been faring better for Visa during the ongoing pandemic era after experiencing a blip in the initial months (March, April) of the lockdown. Thereafter with gradual relaxation of restrictions, business volumes are steadily picking up. This is further evident from growth in processed transactions, which reflects the prevalent worldwide shift to electronic payments, partially offset by the impact of COVID-19.

The significant rise in online shopping is likely to bump up card-not-present (CNP) transactions, which occur in absence of both the cardholder and the credit card. This is commonly applicable to orders placed remotely over the phone or via fax, Internet or email.

Visa’s card-not-present growth remained robust.  The company recently reported that card-not-present volume excluding travel grew 20% in April, 29% in May and 33% in September. On the contrary, card-present volume in major markets bounced back sharply from a 44% decline in April to a 4% dip in September.

Visa’s debit business has been the key beneficiary of the rapid shift to e-commerce and the transition from cash, even for in-person transactions. In the United States, debit is growing twice the rate it was in pre-COVID times.

The company saw substantial buoyancy in the number of people activating their cards online and making more transactions through its usage. This means that the whole transition from face-to-face commerce to e-commerce denotes a remarkable change and is here to stay.

As a matter of fact, this speedy switch from cash to the digital remittances bodes well for Visa as the method is mostly preferred by the millennials. Also, the coronavirus episode prompted the aged population to resort to the digital practice, given its hassle-free process, comfort level and safety. Therefore, purchases made through digital mediums seem a permanent phenomenon.

Even after the vaccine enters our lives, some of the changes intensified by the pandemic will be eternal and digital payment is a case in point. Other stocks in the same space including American Express Co. AXP, Mastercard Inc. MA and Discover Financial Services DFS are also set to benefit from the soaring online sales.

Visa has rallied 7.7% in six months’ time compared with the industry’s growth of 8.3%.

The stock carries a Zacks Rank #4 (Sell), currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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