What happened
Visa (V +1.65%) and Mastercard (MA +1.99%), the two largest payment-processing companies in the world, both saw their stock prices hit new all-time highs today on more positive reopening and stimulus news.
At one point earlier today, Mastercard saw its stock rise as much as 6%, and currently trades around $373. Shares of Visa rose as much as 5% today and currently trade around $222.
So what
Over the weekend, the U.S. Senate approved President Joe Biden's $1.9 trillion stimulus bill, all but guaranteeing it will be passed into law.
Also today, the Centers for Disease Control and Prevention provided guidance that said fully vaccinated people could meet with other vaccinated people and some unvaccinated people indoors without masks.
Image source: Getty Images.
This news is great for Visa and Mastercard's business model. While you may see their logos and brand names on your credit and debit cards, Visa and Mastercard do not actually extend credit.
Instead, they set up the card network for transactions to be made among financial institutions, merchants, and consumers, and they collect fees based on volume. So, more money in people's pockets from economic stimulus and more positive reopening news will likely translate into more spending.
Now what
While the pandemic caused some short-term pain for Visa and Mastercard, it will likely prove to be extremely beneficial long term because it has significantly advanced the use of digital payments.
In 2019, Mastercard said that card payments only made up about 13% of the $235 trillion payments market, leaving huge growth potential for digital payments.
With some research firms and banks projecting gross domestic product (GDP) to surpass 6% in 2021, that would be the highest GDP growth since 1984. It's hard not to like Visa and Mastercard in this environment with pent-up demand and a heavier reliance on digital payments than ever before.
