The pandemic-led lockdowns and social distancing restrictions hurt spending on several discretionary goods, travel, entertainment and fuel, thus impacting payment network giants Visa, Mastercard, American Express and Discover. However, these companies are experiencing improved metrics with the easing of lockdowns.
Moreover, the pandemic has created an opportunity for payment networks due to a surge in e-commerce and the preference for contactless payment options. Last month, Mastercard revealed the results of its survey of small businesses across North America and said that 76% of these companies indicated that the pandemic prompted them to become more digital with 82% changing how they send and receive payments.
The TipRanks’ Stock Comparison tool will help us place Mastercard and Visa alongside each other and see which of these leading payment companies offers a better investment opportunity.
Leading financial services company Mastercard has a presence in over 210 countries and serves customers through 2.2 billion Mastercard branded cards and 417 million Maestro cards. COVID-19’s impact on consumer spending reflected in the company’s 2Q revenue, which declined 19% Y/Y to $3.3 billion and led to a 28% decline in adjusted EPS to $1.36.
However, one positive aspect in the second quarter was the 12% rise in other revenues to $1.1 billion due to growth in the company’s Cyber and Intelligence as well as Data and Services solutions.
As per Mastercard’s 3Q business update, the company is experiencing continued moderate improvements. Notably, switched transactions (reflects the number of transactions initiated, authorized, cleared and settled through Mastercard network), grew 5% in the week ending August 28 compared to 3% in the week ending July 21. Cross-border volume was down 35% in the week ending August 28 compared to a 40% decline in the week ending July 21.
Meanwhile, the company continues to pursue opportunities in priority areas such as open banking, real-time payments, cyber and intelligence Solutions and B2B themes. In June, Mastercard announced an agreement to acquire Finicity, a leading provider of real-time access to financial data and insights, to bolster its open banking platform.
Last month, Mastercard expanded its partnership with TransferWise to allow the issuance of cards in any country where Mastercard is accepted and TransferWise is licensed. Mastercard is also enabling checkout-free shopping through the rollout of its Shop Anywhere platform with several retailers from October.
Aside from Shop Anywhere, another frictionless solution that that company introduced is the AI Powered Drive Through platform, provided in partnership with SoundHound Inc. and Rekor Systems. This new platform will help fast-food and quick-serve restaurant brands speed up a drive-thru or drive-in interaction through vehicle recognition, voice ordering, and artificial intelligence.
Mastercard has also accelerated its Crypto Card Partner Program and has granted Wirex a principal membership license, making it the first native cryptocurrency platform to issue Mastercard payment cards. (See MA stock analysis on TipRanks)
On Sept. 11, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating for Mastercard, stating “Near term COVID-19 pandemic-driven weakness will be overcome by an acceleration in electronic payment and service adoption, which will drive further acceleration in Business Performance trends.”
The Street is also bullish about Mastercard and has a Strong Buy consensus based on 22 Buys, 5 Holds and no Sell ratings. The stock has risen 12% so far this year and a possible upside of 6.8% lies ahead based on the average analyst price target of $358.
Visa, the global payments industry leader with a vast presence in over 200 countries, could not escape the COVID-19 led weakness in transactions and posted a 17% decline in its revenue of $4.8 billion for the third quarter of fiscal 2020, which ended June 30. Adjusted EPS fell 23% Y/Y to $1.06.
Earlier this month, Visa reported a 7% Y/Y rise in its August US payments volume which was slower than the 8% growth in July, reflecting the impact of the expiration of the elevated unemployment benefits. Meanwhile, global processed transactions grew 3% in August compared to a 1% growth in July due to accelerating domestic transactions triggered by the easing of social distancing restrictions. Cross-border volume (excluding intra-Europe transactions) was down 43% in August compared to a 44% fall in July.
Meanwhile, Visa is capturing the demand for contactless payments amid the COVID outbreak through its tap-to-pay solutions. In the US alone, Visa added over 80 million contactless cards in the first six months of this year. It expects tap-to-pay to accelerate post-COVID when consumers start going back to the office and conduct smaller transactions for their commute, pay transit fares, and buy food and drinks.
Also, the rapid shift to e-commerce works well for Visa as its share of digital commerce is about three times greater than the physical point of sale.
The company has been entering into strategic partnerships to expand in key growth areas. It has partnered with UK-based fintech Conferma Pay to integrate Visa virtual cards in the Conferma Pay mobile app. The collaboration will allow companies to provision virtual Visa commercial cards to employees' digital wallets, enabling tap-to-pay and simplify expense reimbursement.
In January, Visa announced a $5.3 billion agreement to acquire fintech Plaid, which has products that enable consumers to share their financial information with many apps and services such as Acorns, Betterment, Chime, Transferwise and Venmo. Visa expects to complete this deal by the year-end.
To capitalize on the accelerated shift to digital payments amid the pandemic, Visa recently extended its global partnership with PayPal. The expanded partnership will enable consumers and small businesses to move their money faster through PayPal and Visa Direct capabilities. (See V stock analysis on TipRanks)
Last month, Mizuho analyst Dan Dolev initiated coverage of Visa with a Buy rating and a price target of $250. The analyst believes that card penetration is the key driver of Visa's volume growth, and channel work points to accelerating card penetration and a boost to US volume growth. He also believes that the long-term stability of the company's "best-in-class" terminal margins should merit mid-teens revenue multiples.
Likewise, the Street is bullish about Visa with 16 Buys, 2 Holds and no Sell ratings adding to a Strong Buy consensus. The stock has risen about 8% year-to-date and the average analyst price target of $222.33 reflects an upside potential of 10% in the coming months.
The better financial play
Both Mastercard and Visa have strong business models that stand to benefit in the digital world. They are on the path to recovery as economies are reopening- though COVID-related impact on travel and other businesses continues to be a major drag on cross-border volumes.
Mastercard has a dividend yield of 0.48% compared to Visa’s yield of 0.59%. Moreover, a lower valuation multiple and higher upside potential ahead as indicated by the TipRanks’ Stock Comparison tool make Visa a more attractive investment currently.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment