Mastercard and Visa May Be Safe Havens in Turbulent Times

03/31/2023

3 minutes read

2023.03.31 07:48

In uncertain times, investors looking for safe havens should consider investing in the digital payments industry.
Visa and Mastercard dominate globally and offer great investment options, especially during high inflation.
Both companies are financially sound, with decent growth prospects.

As the global economy faces a possible recession, many investors seek safe havens to weather the difficult times ahead. One option that stands out is the digital payment market, which offers high stability, geographic diversification, and considerable growth potential.

When it comes to digital payments, Mastercard (NYSE:) and Visa (NYSE:) are the names that immediately come to mind. These global giants dominate the market, with a strong foothold in most global markets, except for mainland China, where UnionPay prevails. With digital payments expected to continue growing through 2022-2026, the two industry leaders are expected to maintain their solid footing in the market.

Digital Payment Market Forecasts

Let’s analyze the strengths and weaknesses of the entire digital payment sector.

Rising Inflation is a Tailwind

Digital payment providers can benefit from rising as they act as intermediaries and do not take on investment or credit risks. This is particularly significant in the recent economic climate, where the banking crisis scare shook the financial markets. It’s important to keep in mind that digital payment providers, such as Mastercard and Visa, play a crucial role in facilitating transactions and are not directly impacted by inflation or other market risks.

Both Visa and Mastercard stand to benefit from persistently high inflation, as it leads to an increase in commission profits due to higher prices. Although their profit share within the customer-merchant chain is relatively low, they make up for it through high transaction volumes. In fact, their transaction volume in 2022 alone amounted to a staggering $11.6 trillion.

Over the past few years, non-cash payment systems have gained ground in Europe, particularly in Scandinavian countries. This trend is being driven by the fight against tax fraud and the gray market. The momentum for these systems continues to grow, which is a positive development for both companies.

The digital payments industry could be adversely impacted by government regulations that impose limits on the maximum fees that can be charged. Currently, the UK, Australia, and the European Union have taken limited steps towards implementing such regulations.

Visa’s Stable Growth in Profits and Revenues

Visa appears to be in a strong position from a fundamental standpoint, as evidenced by its consistent net profit and revenue growth.

Visa Revenue

Source: InvestingPro

Visa Net Income

Source: InvestingPro

It is also worth paying attention to its score of 9 points on the Piotroski indicator.

Visa: Piotroski Indicator Score

Source: InvestingPro

Therefore, it is not surprising that the company scored 4 points out of 5 for financial health. The company is scheduled to release its Q1 2023 results on April 26th. According to forecasts, the earnings per share are expected to be $1.98, and revenues are expected to be $7.76 billion.

Mastercard Isn’t Losing Momentum Either

Upon analyzing Mastercard’s results, it appears that there is no evidence of any slowdown at present. In 2022, payment values increased by 5.9%, which resulted in an impressive 18% rise in sales. Furthermore, the transaction volumes of tourists using cards outside their home country increased by 30% YoY, which is noteworthy. With the predicted global increase in digital payment volumes, there is a high probability that Mastercard will maintain its strong performance, similar to Visa, which has consistently shown growth in revenues and net profits in the current year.

Looking at the technical analysis, the long-term trend of the company’s stock price has been positive, with a buying impulse observed since September of last year. However, since the beginning of this year, the stock prices have been moving within a downward price channel. A breakout above this channel would signal a clear shift in sentiment.

Mastercard Stock Weekly and Daily Price Chart