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Here's Why Mastercard Fell on Thursday

By Matthew Frankel, CFP® - Mar 12, 2020 at 8:56PM

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The fintech giant wasn't immune to coronavirus fears

What happened

The stock market suffered its largest percentage loss since 1987 on Thursday, with the Dow Jones Industrial Average and the benchmark S&P 500 index both falling nearly 10% on the day. The indices are both more than 25% lower than their all-time highs, which were reached just a month ago.

The financial sector has been one of the worst-performing parts of the market in the downturn, and even the best-performing fintech stocks of recent years haven't been immune. Just three weeks after hitting an all-time high of $347.25 per share, Mastercard (MA 1.35%) shed 10.5% of its value on Thursday and is now more than 30% down from its highs.

Person holding credit card in one hand and typing on laptop with the other.

Image source: Getty Images.

So what

Payment processors like Mastercard have a different set of worries than most of the rest of the financial sector. Specifically, banks are getting crushed by (among other factors) plunging interest rates, which are likely to narrow their profit margins on loans.

Mastercard doesn't loan any money directly -- it simply serves as a facilitator between banks, consumers, and small businesses. However, the company's main revenue comes from fees, which are a small percentage of the total transaction volume processed through Mastercard's network. With major events cancelled and consumers avoiding public places, it's virtually certain that the overall payment volume will be significantly lower for as long as the COVID-19 coronavirus outbreak worries in the market persist.

Now what

It remains to be seen if this downturn will be followed by a quick upward movement or if we're in the early stages of a long bear market. This could certainly be an attractive entry point for long-term investors who want exposure to the payment-processing giant, but I wouldn't exactly expect a smooth ride in the near future.

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