The Motley Fool Previous Page

Prep Your Portfolio for a Cashless Society

Joseph Harry
September 17, 2013

Society is digitizing everything from music to money. According to estimates from Euromonitor, mobile commerce is expected to grow a whopping 386% from 2012 to 2017, which translates into $400 billion worldwide.

A cashless future?
While it's unlikely cash will ever be eliminated completely, cashless transactions will continue to increase. Visa (NYSE: V) and rival MasterCard (NYSE: MA) will benefit greatly from this trend. These two companies let banks issue debit and credit cards with their names on them, then collect a fee every time a transaction is made using that card. This is an ideal business model for a future with fewer cash transactions.

Visa and MasterCard operate in a duopoly, and together processed almost 60% of the $13.8 trillion of card transactions last year. Both companies have been growing rapidly as well.

V EPS Diluted TTM Chart

V EPS Diluted TTM data by YCharts.

The growth in both earnings and dividends is especially impressive when looking at the balance sheets of Visa and MasterCard. Both companies carry billions in cash on their books, around $3.35 billion for Visa and $5 billion for MasterCard. Neither carries any debt. Of the two, Visa is much larger, with a market cap around $119 billion, as opposed to MasterCard's $80 billion. 

The new way to pay?
Visa and MasterCard are looking to further eliminate the use of cash by introducing new technology platforms that will allow customers to make payments with their mobile devices -- not only online, but also in physical stores. This may even eliminate the need to pull out a card. Visa is integrating its payment technologies into mobile devices with its Visa Ready Partner Program, and MasterCard has launched a similar platform called MasterPass.

Visa has separated itself from MasterCard by partnering with the world's largest smartphone vendor by market share, Samsung (NASDAQOTH: SSNLF). Samsung's Galaxy S4 is the first mobile device preloaded with Visa's payWave app. This allows S4 users to mak