Thank you for your thesis @Theinvestmentjourney Dale. I appreciate your time answering me.
I’ve been thinking why Visa seems a better investment than Mastercard to me personally. Please note that none of this is investment advice and you should do your own research before putting money into shares, and you can lose your capital.
That out of the way I first got interested in Visa after the Plaid acquisition.
For those interested, Plaid is similar to what open banking is supposed to turn out to be here in the UK, they provide “plumbing for fintechs”.
Mastercard has been the first to jump on the finch wave, and is. somewhat “smaller” of a business than Visa, based on all key indicators, but Visa’s strategy and market dominance attract me more.
I agree that electronic and particularly contactless payments will be only more prevalent in a post-virus world. The trend has been there, and I think the virus is going to put the trend “on steroids.”
Back to basics, both Visa and Mastercard earn their revenue from the following sources:
- Service fees – fees paid by card issuers and the banks of merchants for using the Visa or Mastercard network and their payment services.
- Data processing fees – fees for authorising, clearing and settlement of transactions.
- Cross-border transaction fees – for purchases where the card issuer and merchant are in different countries and for foreign exchange currency conversions.
- Other services – fees for services such as consultancy, data analytics and licence fees for using the Visa and Mastercard brand.
The revenue mix for Visa:
There even mix for Mastercard:
Take-aways:
- Visa gets nearly 70% of revenues from service and data processing fees, and has been fairly stable for the past few years.
- A higher share of Mastercard’s revenue comes from cross-border and foreign exchange conversion fees (see the grey part of the chart) than Visa’s. Mastercard gets 65% of its revenues from outside the US vs 55% for Visa. This would drive more cross-border transactions for Mastercard, meaning COVID-19 would impact Mastercard more.
Do you Dale or anyone on the forum considers Mastercard a better investment at current prices?
(The source for the chart and the data points is the excellent IC article on the two companies.)