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Is Mastercard a Better Buy Than Visa?

By Matthew Frankel, CFP® and Jason Hall – Oct 1, 2021 at 6:26AM

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Which of the payment processing giants is the best investment opportunity?

Many investors feel that Mastercard (MA -0.11%) is a better investment than Visa (V -0.31%) simply because it's a little bit smaller and therefore has more room to grow. But as contributor Jason Hall explains to colleague Matt Frankel, CFP, in this Fool Live clip, recorded on Sept. 20, that might not be the only reason.

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Jason Hall: It's a smaller business, obviously. It's the smaller of the two and I think too many people look at it and say, well, OK, that just means it can get bigger, faster because it's smaller.

But the bottom line is, I think the bigger opportunity of these two for Mastercard is this is the company that pivoted more toward particularly the business-to-business payments sooner. It's certainly invested more in building out that part of its business. It's still early to really see how that's going to pay out. But it has some advantages and the fact that it moves faster there. I think that could be advantageous and that alone for me was enough reason to rank it higher than Visa.

Matt Frankel: I would agree with that. I think Mastercard has done a generally better job at innovating. They are slightly smaller player than Visa in a market that has very high barriers to entry.

Hall: Yeah.

Frankel: There are four big players in payment processing; Visa, Mastercard, American Express (AXP -1.16%), Discover (DFS -1.56%). Visa and Mastercard combined for I think over 80% of the market don't quote me on that, but I think it's up there.

Hall: It's high.

Frankel: I bet you can't tell me who number five is.

Hall: Not outside of China. I think that's important to point out as we're speaking outside of China because there are some pretty big payment processors inside China.

Frankel: There are and in some foreign markets there are big ones, but in the U.S. there are four. I don't even know if there is a number five. If I were going to start a new business today, I would accept those four credit cards. There wouldn't be anything in my mind.

Hall: Somebody would have to pay me to take another card. 

Frankel: Yeah, it's mind-boggling how big the reach of these two companies are, and it's also one thing to point out with both Mastercard and Visa since we just mentioned some international markets.

A lot of international markets that do have Mastercard and Visa acceptance, credit card acceptance in general is not nearly as universal as it is here. Some parts of Latin America for example, you have to have cash in a lot of places still, and these are markets where Visa and Mastercard do have a presence. The credit card economy hasn't been built out to that point or debit cards for that matter. In a lot of these foreign markets, there is still a lot of room for these to grow. I think I ranked Mastercard a little bit higher.

They were my five (out of eight fintech stocks) and this was my number six just because they're slightly smaller company which generally means a little bit more growth potential. Mastercard has been a little bit more aggressive when it comes to embracing new technologies, and like Jason said, that person-to-person and business-to-business payments.

American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Matthew Frankel, CFP owns shares of American Express. The Motley Fool owns shares of and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Mastercard Stock Quote
$356.00 (-0.11%) $0.40
Visa Stock Quote
$216.32 (-0.31%) $0.68
American Express Stock Quote
American Express
$155.76 (-1.16%) $-1.83
Discover Financial Services Stock Quote
Discover Financial Services
$106.67 (-1.56%) $-1.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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