One of the most popular investment themes you will see deals with the battle between the "Big Three" card companies. It's an interesting conversation because MasterCard (MA +1.55%), Visa and American Express are all solid companies in an industry poised to take advantage of the way we pay for goods and services going forward. However, there is only one clear-cut leader when it comes to delivering for shareholders and strengthening itself in a mature domestic market.
MasterCard still the best
MasterCard has grown into one of those few "supershare" companies since its initial offering nearly 8 years ago. 2013 was a good year too and the stock now sits at over $830 per share (awaiting a split) -- up well over 60% in 2013.
Photo: Hakan Dahlstrom
When you see these numbers, every astute investor wonders if he or she missed the boat. Would a competitor offer more growth potential? Well on December 10, MasterCard made some announcements about the future that should ease any doubts.
MasterCard is raising its dividend to $1.10. That's an increase of 83%. It's the second time in the last year and half the company has nearly doubled its dividend.
Also, MasterCard put in progress a $3.5 billion buyback program that starts when the current program ends. The current program is a $2 billion program with $514 million remaining until completion.
The dividend hike and the buyback equate to MasterCard giving back around 80% of its cash flow back to shareholders over the next year. The increase in shareholder value was a nice bit of news during the holiday season.
Also, keep in mind that MasterCard will do a 10 for 1 stock split effective close of market today (January 9, 2014). It may make the stock more attractive to those investors who shy away from shares approaching the $1000 mark and those with possible liquidity fears.
To me, if the case to buy ended here, the stock would still be a strong buy as is. But MasterCard may have just entered into a partnership that will give it an opportunity too create more cash flow in the U.S. market.
Source: Google
And here is where Google enters the picture
In 2011, Google (GOOG 0.05%) introduced their Google Wallet app. Google Wallet was intended to be a digital substitute for the actual wallet you keep in a purse or your back pocket. The app holds any debit, credit, gift, coupon and loyalty cards and can be linked to your bank account. Rather than rummaging to find specific cards and swiping them through, users can just tap their phone to the MasterCard PayPass terminal.
However, the bad news for Google is that the app hasn't really caught on. Wireless carriers never embraced the technology and their phones were rarely upgraded to be compatible.
Now, Google has had an epiphany: If we link the app to a card, we can bypass much of the issues Google Wallet has experienced so far. Maybe we all aren't ready to have our financial information tied to our cell phone, but we are quite accustomed to using a card in our everyday lives.
How does the Google Wallet Card help MasterCard?
In November 2013, Google unveiled the Google Wallet Card and its supported by MasterCard.
Source: Google
Users can enter any card or bank details for their Google Wallet account. Now the Google Wallet Card becomes another party in the payments process where MasterCard makes its revenue from charging the participating banks. Think of it this way, any time a transaction is made using Google Wallet Card, as far as MasterCard is concerned, its like it was made with a MasterCard. They now handle the transaction and collect the fees no matter what funded the Google Wallet account.
Going forward
Gartner Research recently came out with a report on worldwide mobile payment transaction values. Its forecast called for values to reach $235 billion for 2013. That's up 44% from 2012's $163 billion. That same report forecasts that the mobile payment market will hit $700 billion by 2017.
For now, the Google Wallet Card can only be used in the U.S., but those numbers look promising too.
The transaction value for North America is expected to grow 53% for 2013 – reaching $37 billion up from $24 billion the prior year. The app's original problems stemmed from technological and competitive issues. The Google Wallet Card moves the app beyond those initial problems. And with the growing use of mobile payments, you'll see more Google Wallet users using their card and making MasterCard money.
