Reform Measures Haven't Hurt These Stocks

From the financial results that credit card companies have turned in recently, it appears that despite their assertions to the contrary, reform measures passed over the past couple of years haven't hurt the industry's bottom line.

Credit card companies lobbied hard against the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, which barred issuers from raising interest rates without notice, and the Durbin Amendment to the Dodd-Frank reform legislation, which capped processing fees that card companies could charge merchants. The claim was that these regulations would hurt their profit margins, but, as it turns out, they needn't have worried.

MasterCard (NYSE: MA  ) just turned in an excellent Q1 report, showing a 17% increase in customer card purchases from the year prior, with a 17% rise in revenue. Though still playing second fiddle to Visa (NYSE: V  ) , MasterCard is gaining fast in the debit card market, thanks to the Durbin Amendment, which now requires more variety in the companies banks use to process debit card transactions. While Visa had many of those relationships sewn up before the passage of the law, MasterCard has been able to grab a piece of that action for itself with its PIN debit card processing Maestro network.

Visa did all right as well, reporting a 15% rise in revenue year over year with an 11% increase in cardholder transactions. The company teamed up with Vodafone (NYSE: VOD  ) earlier this year to begin offering mobile payment options under the name Vodafone Mobile Wallet. The new initiative will be offered in only a few countries this year, but eventually the companies plan to make the product available in all 30 countries in which Vodafone has a presence.

Let's not forget American Express (NYSE: AXP  ) , which saw its own revenues increase 9% from last year and net income rise by 35%. This card issuer has been busy making deals as well, one of which is a prepaid debit card product currently being tested at a handful of Wal-Mart (NYSE: WMT  ) stores. Wal-Mart offers its own prepaid card, MoneyCard, administered by Green Dot, but the new card is not considered competition, only an expansion of Wal-Mart's financial-services sector.

American Express' card, code-named"Bluebird," is targeting the less affluent set that normally wouldn't apply for a standard AmEx card. The company has partnered with Twitter to bring users special offers from retailers, as long as they sync their card with an active Twitter account.

Fool's take
Credit card issuers are on a roll, and things can only get better as the economy continues to improve. Although both Visa and MasterCard have been named in lawsuits with retailers regarding swipe fees, analysts are sanguine since the percentage of revenue being targeted is small -- only 2%. The forays into new territory that these vendors are executing should continue to increase profits for some time, and, as these companies are flexible and always right on top of new trends to exploit, they will continue to find new opportunities. What else could a financial investor ask for?

Savvy investors know the financial sector is very profitable and that banking stocks are some of the most lucrative investments you can make. What do they know that you don't? Find out by ordering our free report today!

Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of MasterCard. Motley Fool newsletter services have recommended buying shares of Visa and Vodafone Group, creating a write covered strangle position in American Express, and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1880298, ~/Articles/ArticleHandler.aspx, 11/25/2014 11:29:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement