As the two largest credit card network operators, Visa (NYSE:V) and Mastercard (NYSE: MA) dominate the global payments industry.
Yet with their stocks up 740% and 660%, respectively, over the past decade, you could be excused for thinking their days of turbocharged growth are behind them.
You could also be quite wrong to think that.
Here are three reasons to believe that tremendous gains still lie ahead for these payments titans.
1. The staggering possibilities of e-commerce
Even after two decades of torrid growth, the rise of e-commerce is still in its early innings. Online sales comprise only about 10% of the global retail total, and research firm eMarketer estimates that retail e-commerce sales will increase from $2.3 trillion in 2017 to nearly $4.5 trillion in 2021. With hundreds of millions of new people gaining access to the internet every year, e-commerce appears set to keep growing at a rapid pace for at least another decade, and likely much longer.
Why is the growth of e-commerce beneficial to Visa and Mastercard? The answer is simple: Online sales are far more likely to be completed via digital payment methods than in-store transactions. In fact, Visa CFO Vasant Prabhu recently said that for online purchases, "the propensity to use a Visa card is twice as high as a face-to-face transaction." So as retail sales continue to trend online, Visa and Mastercard stand to profit handsomely.
2. Massive -- and largely untapped -- market opportunities
Another area where these companies are expanding is in the business-to-business payments arena. This is a $124 trillion market, according to Mastercard CFO Martina Hund-Mejean, and one in which more than 80% of the transactions are currently completed via ACH, check, or cash.
Both recently announced new B2B platforms, which they believe will allow them to capture a larger share of this immense opportunity. Mastercard's B2B Hub offers small and midsized businesses automation tools for digital invoice processing and accounts payable management that "improve the speed, ease, and security" of their commercial payments. Meanwhile, Visa's B2B offering, the Visa Ready Program for Business Solutions, helps companies quickly integrate an array of Visa B2B payments solutions, including "enhanced data, virtual card integration, payables automation, and payment controls."
By offering tools to small businesses that were previously only available to larger enterprises, Mastercard and Visa should be able to rapidly advance their beachhead in B2B payments.
3. Widening the moat
Acquisitions are helping the rivals accelerate their growth in these high potential markets, as well as strengthen their competitive advantages over rivals.
Mastercard's recent acquisition of VocaLink gave it the ability to offer business customers immediate bank account-based payments, known as Fast ACH. ACH is an electronic payments network that is commonly used for applications like direct deposits and payroll. This is a huge market -- more than 25 billion payments and $43 trillion in value were transferred via ACH in 2016 -- that is separate from Mastercard's core credit card network. Moreover, it can now offer prospective clients a holistic payments solution, including credit, debit, and ACH -- a value proposition that should help Mastercard continue to win new deals.
Visa has also been on the hunt for acquisitions. In fact, the credit card giant is still digesting its $23 billion purchase of its former subsidiary, Visa Europe. The deal reunited the companies and added more than 500 million card accounts and $1.5 trillion in payments volume to Visa's network. The merger has been a boon for Visa's business, one that should continue to reward shareholders for many years to come.