This comparison between Mastercard Incorporated (NYSE:MA) and PayPal Holdings, Inc. (NASDAQ:PYPL) represents a fascinating parallel between the industry standard credit cards and the emerging paradigm of digital payments.

In an interesting aside, PayPal has recently partnered with the major credit card processors, including Mastercard, to have its digital payments processed on their systems. This seeming contradiction illustrates the overlap between the older established payment method and the growing trend of payments without the accompanying card. Let's see which company offers investors a better opportunity right now.

Businessmen back to back fighting symbolic duel with fingers raised as weapons.

Which company earns the top spot for new money in this analysis? Image source: Getty Images.

Current results and growth prospects

Mastercard has been increasing its capability in the payments space in a move to expand its reach and differentiate itself from the competition. The company has recently completed its acquisition of VocaLink, which moves beyond its current card-based transactions and into the realm of ACH transactions, which transfers funds directly between bank accounts. The company also acquired NuData Security, a company that uses passive biometrics to discover fraudulent activity.

PayPal isn't resting on its laurels. In addition to expanding agreements with the major card processors, PayPal is continuing to develop the capability of its Venmo payment platform. This peer-to-peer platform processed $6.8 billion in total payment volume during the quarter, up 114% year over year. Merchants that accept PayPal will soon be able to begin accepting payments using the Venmo app, which was previously used to make payments between friends connected through the app.

In its most recent quarter, PayPal grew revenue to $2.975 billion, up 17% over the same period in 2016. Net income increased to $751 million, up 5% over the prior-year quarter. Total accounts jumped to 203 million in the current quarter, and transactions processed on those accounts grew by 23% over the prior-year quarter.

During the same period, Mastercard's revenue topped $2.7 billion, an increase of 12% year over year. Net income for the period grew to $1.08 billion, an increase of 13% over the prior-year quarter. The slight increase in earnings per share was the result of the company's share repurchases. The company also reported a 17% increase in the number of transactions it has authorized, cleared, or settled, which it refers to as switched transactions.

PayPal logo outside headquarters building.

PayPal has stronger revenue growth. Image source: PayPal.

PayPal has grown at a faster clip, and the shift toward mobile wallet and digital payments could potentially disrupt credit cards as the primary payment method in the coming years.

Valuation and stock performance

Both companies have produced compelling returns over the last year. Since May of 2016, Mastercard has shown a 26% return, while PayPal has outpaced its larger rival with a return of 33%.

As a result of PayPal's greater returns, investors have higher expectations for future results. Based on its earnings over the last four quarters, PayPal currently trades at nearly 43 times trailing earnings, while Mastercard has an earnings multiple of 31, making it a better value.

Looking forward, that advantage all but vanishes. PayPal's forward multiple is 29, only slightly higher than Mastercard's forward valuation of 28, giving it a slight advantage, albeit a modest one.

PayPal has exhibited better stock performance, but Mastercard has the edge in valuation.

Dividends and share repurchases

Mastercard and PayPal have been expanding their operations and investing in future growth opportunities, and their dividend payouts have reflected those priorities. PayPal has not initiated a dividend at all, and Mastercard's current payout has a yield of just 0.73%. Mastercard recently increased its offering by 16%, and its dividend payout has doubled since 2014. 

Both companies have emphasized share repurchases over dividend payouts. Mastercard has reduced its share count by over 2% in the last year. During the same period, PayPal's total shares have dropped by 0.48%. The difference is even more pronounced when you look further back. Over the last three years. Mastercard has bought back over 5% of its shares, while PayPal has reduced its share count by 1.5%.

A Mastercard credit card touting biometrics.

Mastercard has returned more to shareholders. Image source: Mastercard.

Each has announced that it will continue repurchasing shares. In December, Mastercard's board approved a plan to repurchase up to $4 billion worth of the company's shares. PayPal made its own announcement in April, in which it reported its intention to buy back up to $5 billion in shares.

In both dividends and share repurchases, Mastercard has shown itself to be more investor friendly in returning capital to shareholders.

Final tally

By any objective measure, this is too close to call. Either company would be a good addition to any portfolio, and both have good prospects. While Mastercard has shown itself to be more shareholder friendly and has a slight edge in valuation, PayPal has demonstrated greater share price returns and better financial results.

If forced to be the tie-breaker, I would have to call PayPal the winner by a hair based on its future prospects. The nature of payments is changing, and PayPal is well positioned to take advantage of the digital migration.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.