MasterCard's Deal With Google Will Change Your Wallet Forever

One of the most popular investment themes you will see deals with the battle between the "Big Three" card companies. It's an interesting conversation because MasterCard (NYSE: MA  ) , Visa and American Express are all solid companies in an industry poised to take advantage of the way we pay for goods and services going forward. However, there is only one clear-cut leader when it comes to delivering for shareholders and strengthening itself in a mature domestic market.

MasterCard still the best
MasterCard has grown into one of those few "supershare" companies since its initial offering nearly 8 years ago. 2013 was a good year too and the stock now sits at over $830 per share (awaiting a split) -- up well over 60% in 2013.

Photo: Hakan Dahlstrom

When you see these numbers, every astute investor wonders if he or she missed the boat. Would a competitor offer more growth potential? Well on December 10, MasterCard made some announcements about the future that should ease any doubts.

MasterCard is raising its dividend to $1.10. That's an increase of 83%. It's the second time in the last year and half the company has nearly doubled its dividend.

Also, MasterCard put in progress a $3.5 billion buyback program that starts when the current program ends. The current program is a $2 billion program with $514 million remaining until completion.

The dividend hike and the buyback equate to MasterCard giving back around 80% of its cash flow back to shareholders over the next year. The increase in shareholder value was a nice bit of news during the holiday season.

Also, keep in mind that MasterCard will do a 10 for 1 stock split effective close of market today (January 9, 2014). It may make the stock more attractive to those investors who shy away from shares approaching the $1000 mark and those with possible liquidity fears.

To me, if the case to buy ended here, the stock would still be a strong buy as is. But MasterCard may have just entered into a partnership that will give it an opportunity too create more cash flow in the U.S. market.

Source: Google

And here is where Google enters the picture
In 2011, Google (NASDAQ: GOOGL  ) introduced their Google Wallet app. Google Wallet was intended to be a digital substitute for the actual wallet you keep in a purse or your back pocket. The app holds any debit, credit, gift, coupon and loyalty cards and can be linked to your bank account. Rather than rummaging to find specific cards and swiping them through, users can just tap their phone to the MasterCard PayPass terminal. 

However, the bad news for Google is that the app hasn't really caught on. Wireless carriers never embraced the technology and their phones were rarely upgraded to be compatible. 

Now, Google has had an epiphany: If we link the app to a card, we can bypass much of the issues Google Wallet has experienced so far. Maybe we all aren't ready to have our financial information tied to our cell phone, but we are quite accustomed to using a card in our everyday lives.

How does the Google Wallet Card help MasterCard?
In November 2013, Google unveiled the Google Wallet Card and its supported by MasterCard. 

Source: Google

Users can enter any card or bank details for their Google Wallet account. Now the Google Wallet Card becomes another party in the payments process where MasterCard makes its revenue from charging the participating banks. Think of it this way, any time a transaction is made using Google Wallet Card, as far as MasterCard is concerned, its like it was made with a MasterCard. They now handle the transaction and collect the fees no matter what funded the Google Wallet account. 

Going forward
Gartner Research recently came out with a report on worldwide mobile payment transaction values. Its forecast called for values to reach $235 billion for 2013. That's up 44% from 2012's $163 billion. That same report forecasts that the mobile payment market will hit $700 billion by 2017.

For now, the Google Wallet Card can only be used in the U.S., but those numbers look promising too.

The transaction value for North America is expected to grow 53% for 2013 – reaching $37 billion up from $24 billion the prior year. The app's original problems stemmed from technological and competitive issues. The Google Wallet Card moves the app beyond those initial problems. And with the growing use of mobile payments, you'll see more Google Wallet users using their card and making MasterCard money.

More game-changing companies
They said it couldn’t be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he’s ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen 6 picks for ultimate growth instantly, because he’s making this premium report free for you today. Click here now for access.

Read/Post Comments (4) | Recommend This Article (8)

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.

Add your comment.

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: 2788511, ~/Articles/ArticleHandler.aspx, 9/4/2015 4:11:13 AM

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...

Jason Jenkins

Jason has been writing financial research articles since 2011. He started his career in the financial services world dealing with retirement planning for individuals and small businesses. Later, he would spend several years in the CDO market.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 3:59 PM
GOOGL $637.05 Down -7.86 -1.22%
Google (A shares) CAPS Rating: ****
MA $91.65 Up +1.22 +1.35%
MasterCard CAPS Rating: *****