Credit Cards: The outlook for this sector is strong – Mastercard and Visa are put to the test – 11/08/21

Credit card companies: With the economic recovery, the business of Visa and Mastercard rebounded strongly. Several factors ensure that operations and inventories continue to improve. By Egmund Haidt

nThe Olympic Games in Tokyo will run until August 8. While the event was met with resistance from many Japanese due to the sharp rise in the number of infections, the credit card provider is using it visa Sponsoring the Games to publicize their cause with athletes such as 23-year-old competitive swimmer Florian Willbrook. “I’m paying Visa,” the company said. CEO Al Kelly wants to boost an already thriving business through this and by increasing overall marketing expenditures. So, despite the profit taking after the numbers are shown, the stock’s record run should continue.

There are about 3.6 billion Visa cards in circulation, 70 percent of which are debit and other credit cards. They have all been used aggressively lately. So, in the third quarter of the 2020/21 fiscal year, which ended in June, the group increased its sales by 27 percent to $6.13 billion. This was contributed to the fact that the volume of payments increased by 34 percent with the currency adjustment to 2.72 trillion dollars.

Since the travel business has rebounded significantly in a number of countries after easing, the volume of payments in cross-border use increased by 47 percent after adjusting for currency effects. This metric is very important because such transactions are especially profitable for Visa. Operating profit increased by 36 percent to $4.1 billion, corresponding to a margin of 66.3 percent. CFO Vasant Prabhu used this to buy back shares for $2.2 billion and pay out about $700 million in dividends.

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In providing the numbers, Prabhu was confident of this, even if he did not provide a full-year forecast due to the uncertainty due to the pandemic. True, cryptocurrency purchases by Visa customers, which surged in April and May after stimulus checks were sent in the US, fell in June. “In practically all of our business in the United States, we are going back to where we were, as if the pandemic never happened,” Prabhu said. “The only area of ​​our business that was not at the previous level is cross-border travel. This is the next stage of the recovery.” Mitigation in Britain and Canada should contribute to this. Acquisitions provide additional tailwinds. At the end of June, Visa acquired the Swedish fintech company for 1.8 billion euros. Banks and start-ups use the Tink Open Banking platform to access financial data of clients from more than 3,400 financial institutions. At the end of July, the credit card provider then bought Currencycloud for 700 million pounds (822.6 million euros). The London-based company is a technology provider for cross-border payments.

Business is also being boosted by high inflation in many countries. In the United States, for example, consumer prices rose 5.4 percent in June. Many experts expect the inflation rate to remain at a similarly high level in the coming months, especially as the US Federal Reserve continues to print money in earnest. The European Central Bank recently returned to the Fed’s path after reviewing the strategy: European monetary authorities want inflation to rise further over the next few years. In the medium and long term, Visa should also benefit from the fact that e-commerce continues to grow rapidly. In traditional retail, debit and credit card payments must increase significantly at the expense of cash. We are working to increase the course objective for obtaining a Visa.

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Good company numbers seamlessly follow those of competitors American Express who also reported great card business results. However, this represented only 12.5 percent of the group’s sales. In addition, there are risks in the event of a default with cards in American Express. Unlike Visa and competitor Master Card Credit Card: These are only forward payments. You have a different business model. Business is also booming at Mastercard, which is why the stock is setting a record. The company has 2.85 billion cards in circulation, 85.8 percent of which are credit cards. In the second quarter, sales rose 36% to $4.53 billion. The volume of payments increased 33 percent after adjusting for currency effects to $1.9 trillion. Mastercard has benefited greatly from the use of cards across borders, which increased in volume by 58 percent after adjusting for currency effects. It made the environment ring, and operating profit jumped to $2.34 billion – which corresponds to a 51.7 percent margin.

Hope for more roaming

“We delivered strong sales and earnings growth this quarter,” said CEO Michael Maybach. It also returned $1.7 billion to shareholders through share buybacks. Added to this is $434 million in profits. Maybach, like fellow Visa fellow Prabhu, expects more impetus from the tourism sector. “The international travel business is still in the early stages of recovery and offers additional upside potential,” Maybach said.

Mastercard acquired US company Ekata for $850 million in early June. With identity verification solutions and machine learning technology combined with Mastercard’s expertise to prevent fraud, the new subsidiary helps customers such as retailers, financial firms and travel companies interact securely online. The deal is expected to have a negative impact on the mother’s profitability for a maximum of two years, but will then boost it further.

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Visa and Mastercard stocks are still promising. Both companies shine with excellent profit margins, and according to the consensus of analysts, earnings should increase sharply this year and the next.


In a glance

victorious progress of plastic money only briefly due to the pandemic. Meanwhile, keep going at full speed. Although Visa replaced China Unionpay as the world’s largest card provider in 2015, Visa clearly ranks first in the rest of the world, ahead of Mastercard. The outlook for the sector is strong.

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