Visa and MasterCard were both rallying on October 30, with Visa up about 10% and MasterCard up about 9% during the middle of the day. Industry-wide factors like a regulatory change for payment cards in China and strength in the domestic economy benefit both MasterCard and Visa, and the payment card companies also plan to raise their prices. For these three reasons, the payment card companies could see more gains in 2015 as well.
The domestic economy is heating up
Even though the second quarter number came in higher, the domestic economy still showed a solid performance with 3.5 percent quarter-over-quarter growth in the third quarter. It looks like the strength of the domestic economy translated into gains for the payment card companies. In overall terms, for the domestic market Visa reported 9.2% volume growth and MasterCard reported 7.5% volume growth this quarter. Both companies posted solid results abroad as well.
International market opportunities
Visa and MasterCard reported higher volumes in international markets as well, although the strength of the U.S. dollar dragged down their results in some places, especially Latin America. In constant currency terms, Visa reported 12.2% payment volume growth in Latin America and the Caribbean, while MasterCard reported 14.5% growth in Latin America. In U.S. dollar terms, the figures were 6.6% and 9.4% for Visa and MasterCard, respectively. So the strong dollar hurt both companies abroad, but a rule change by the Chinese government could help soften the blow.
Chinese regulators just opened up credit card processing to international companies. The market had previously been controlled by UnionPay, which was run by the Chinese government. The move promotes the development of the Chinese consumer economy; growth in this area could benefit a wide variety of retailers, hotels, and consumer-focused firms in addition to payment card companies. The decision came too late to affect third quarter results for Visa and MasterCard, but it could affect their earnings in upcoming quarters. In addition to international markets, price increases could also lead to gains for the payment card companies.
Visa just announced an upcoming price hike for some card processing fees in 2015. MasterCard was already planning to raise prices on certain transactions at the start of the year. The decision by both payment card companies to raise prices in 2015 suggests that they aren't too worried about competing payment systems. Both Visa and MasterCard have very strong brands as well, which is important in an environment where hackers have recently broken into the records of several major retailers.
Both domestic and international markets seem to be improving for the payment card companies at the moment. Even with the drag from the strong dollar, these companies both provided relatively positive outlooks. While the stocks aren't inexpensive, with Yahoo! Finance listing forward P/E ratios of 23 for both Visa and MasterCard after their Thursday rallies, with multiple growth drivers available these premiums could be justified.
* Photo by MasterCard