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Mastercard (MA) to Gain From Strong Holiday E-commerce Sales

Zacks Equity Research
·3 min read

As a leading payment facilitator, Mastercard Inc. MA has been benefiting from the shift in payments to online and digital modes from the physical ones. The transition to electronic payment has been consistent over the past many years with the COVID-19 episode further accelerating this trend.

Retail sales scored big this holiday season, once again proving that people didn’t hesitate to spend generously despite the pandemic. Courtesy of e-commerce, people shopped widely on online platforms. As a result, Mastercard’s U.S. transaction volumes are likely to witness a surge in the fourth quarter of 2020.

During the expanded holiday season from Oct 11 through Dec 24, retail sales climbed 3%, per a Mastercard report. The pandemic had cast a shadow over this year’s holiday sales, given that millions are jobless and lacking spending power. Surprisingly, overall retail sales saw a jump despite the massive pandemic blow the sector has suffered over the past few months.

However, sales were driven by e-commerce in 2020 as more people shifted to shopping online. Per the Mastercard report, overall online sales surged 49% from the 2019 reading, reflecting that Americans are increasingly relying on e-commerce amid the prevalent pandemic stress. E-commerce accounted for 19.7% of the overall holiday retail sales in 2020, up from 13.4% in 2019.

Business from the United States is faring better for Mastercard during COVID-19 times after experiencing a blip in the initial months (March and April) of the lockdown. With gradual relaxation of restrictions, business volumes are picking up as evident from growth in Switched Volumes and Switched Transactions.

According to the latest  operating metrics provided by Mastercard, for the week ending Nov 21, management announced that overall Switched Volumes rose 3%, primarily driven by higher contribution from the United States (up 6%), from the rest of the world, which was up just 1%. Per management, business growth in the United States was attributable to the recent strength in the holiday retail spend.

The significant spike in online shopping is likely to drive card-not-present (CNP) transactions, which occur in absence of both cardholders and the credit cards. This is commonly applicable to orders placed remotely over the phone or via fax, internet or email.

Notably, the rapid shift from cash to the digital modes of payment bodes well for Mastercard as this is mostly preferred by the next-gen consumers. Also, the coronavirus outbreak prompted the seniors to get accustomed to e-shopping, given its high flexibility, ease and security. Therefore, purchases made through digital mediums are here to stay.

Even when the immunization program is on, some of the changes introduced by the pandemic seem everlasting and payment via the digital mode is one such phenomenon. Other stocks in the same space including American Express Co. AXP, Visa Inc. V and Discover Financial Services DFS are also set to benefit from the recovery in international travel.

Mastercard has rallied 16.1% year to date compared with the industry’s growth of 8.3%.

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