Why Visa is Dragging on the Dow Today

The world's largest payment network is down in early afternoon trading Wednesday. Here is what's driving the decline.

Jun 4, 2014 at 1:00PM
Take The Long View

The Dow Jones Industrial Average (DJINDICES:^DJI) stumbled in morning trading before rising 16 points into the green by early afternoon Wednesday.

The Dow's fluctuations were driven first by a disappointing labor market report from payroll company ADP, indicating that this Friday's jobs report from the U.S. Labor Department may be disappointing. The market then turned higher after the Institute for Supply Management nonmanufacturing report indicated stronger than expected output in the service sector of the U.S. economy.

Shares of Visa (NYSE:V), the top-weighted company on the Dow, dropped as far as $209.50 before rebounding slightly. At 1 p.m. EDT, the credit card giant was trading down 0.4%. 

The drop today continues the short-term trend for the company, which is down over 1.5% over just the past two days. The second-largest payment network company, MasterCard (NYSE:MA), has also declined, but by about 50% less than Visa.

For a detailed report on exactly how the payments industry works and the future for companies like Visa and MasterCard, click here.

V Price Chart

V Price data by YCharts.

Short-term turmoil is long-term opportunity
First and foremost, nothing in the past week has meaningfully altered the business fundamentals at Visa or MasterCard. That said, a couple news items are contributing to Visa's recent slide.

Earlier this week, Visa announced that CFO Byron Pollitt would retire within the next 12 months. A shake-up in leadership at a level this high can be a risky proposition, and the markets have reacted to the news as such. 

Most analysts expect Visa will find a suitable, shareholder-friendly replacement, and the long-term outlook remains unchanged. But the fact remains that with change comes uncertainty, and the investing community doesn't buy into uncertainty.

Visa also announced this week that it will change the way it labels prepaid products. Many consumer rights groups have argued that prepaid cards can be misleading to consumers, as the fees and costs of the cards can be ambiguous, poorly communicated, and way too high.

To address this problem, Visa will roll out a standard emblem that will be affixed to cards carrying its logo that meet certain consumer-friendly standards. These cards will have features including flat monthly fees, no overdraft fees, and no withdrawal or usage fees.

The risk for Visa in this decision is that it could cut into profits at the finance companies issuing the cards. Visa doesn't actually make money from these fees, it only operates the network that processes the transactions.

The card issuer, typically a bank, sets and keeps the fees. If the card issuers are not making enough money from the products, they could switch to a rival payment network.

Why take such the risk? 
There are two good reasons for Visa to make this move. First, it's the right thing to do. There is no reason for a global, highly reputable brand like Visa to tolerate misleading, deceptive, or abusive practices. From a business perspective, consumers will recognize Visa's new label as a standard for quality, and will gravitate to the cards certified as consumer-friendly. Competitors that don't follow suit will likely be left behind.

Visa Logo Old Fool Flickr

Second, prepaid cards have the potential to unlock the massive market of underbanked individuals in the U.S. and abroad. These individuals typically have lower incomes and often do not even have a simple checking account.

Prepaid cards can be loaded in a physical store or online, and can be used just like an debit card, except without a bank account. 

Visa is even using the prepaid technology to link cards to cell phone accounts in Africa, bringing the modern financial system to the most remote and undeveloped regions in the world.

For Visa, MasterCard, and the card issuers, opening up this market is a huge opportunity for growth and long-term profits.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers