In yesterday's earnings announcement, MasterCard
Of greater significance to many analysts is that MasterCard reported the number of processed transactions was essentially flat, rising 0.1%. MasterCard investors are closely watching consumer spending numbers, and flat transaction volume isn't a good sign. However, if you normalize transaction growth based on the loss of a series of debit portfolios earlier this year, then transaction growth increased about 10%. By comparison, Visa
Consumer spending worries aren't the only concern for MasterCard and Visa. Investors in both companies are also focusing on the future impact of the Dodd-Frank financial regulatory reform legislation and the possibility that limits may be placed on the fees that MasterCard and Visa impose on merchants when processing debit card transactions. The payment processors have an advantage over banks in that they are insulated from any consumer credit card defaults, although rising delinquency rates as part of a consumer credit crisis would bring down transaction volumes. In the short term, the risk of credit card delinquency seems low, with late payments falling to their lowest rates since 2002. Credit card delinquencies fell to 3.88% from 4.39% from the fourth quarter of 2009 as consumers are saving more and paying down debt. But the more immediate concern for processors like MasterCard and Visa is that their debit card interchange fee revenue could decrease materially because of the financial reform legislation.
Perhaps an even larger concern for future earnings, or an even greater growth opportunity (depending on your perspective), is the potential for mobile payments to dominate the electronic payments industry. In short, in the future you may want to throw away your plastic and start using your smartphone to transact. Verizon
At market close today, MasterCard shares are down almost 1%. Notwithstanding the consumer spending, regulatory, and mobile payments concerns, is now a good buying opportunity for MasterCard? For what it's worth, Goldman Sachs recently removed MasterCard from its conviction buy list, although it is still keeping a buy rating on the company. Goldman added Visa to the conviction list because of its faster-growing debit business.
You take it from here
Do you agree with Goldman that Visa is a better opportunity than MasterCard? Do mobile payments create a near-term threat for MasterCard and Visa? Let us know your thoughts in the comments box below or click over to Motley Fool CAPS to vote the stocks you think are most likely to outperform (or underperform) the market.
John Keeling does not own stakes in any of the companies mentioned in this article. Discover Financial Services is a Motley Fool Inside Value choice. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.