While most of the daily news focuses around the U.S. economy, for many companies -- specifically Visa (NYSE:V), MasterCard (NYSE:MA), and American Express (NYSE:AXP) -- the U.S. is only a small piece of an enormous global pie.
According to American Express CEO Ken Chenault, China, Brazil, and Japan will be three of the most important markets to penetrate.
While growth in emerging markets is equally important for all three companies, each has taken a different route to strengthening its presence.
UnionPay is unquestionably the dominant card in China. Until recently, in fact, government regulations stipulated it be the only card in China -- which helped catapult UnionPay into the ranks of the top players in the payments industry.
According to Chenault, while there's limited opportunity inside China, there's great opportunity outside of the country. This sounds a bit confusing, but what American Express has done -- and is continuing to do -- is work with the largest Chinese banks to "develop products and services [...] that can be marketed to those Chinese traveling outside of China."
The flexibility of American Express' model means it won't have to wait 10 years to realize the opportunity. Chenault believes American Express' ability to build a presence in China without using significant amounts of capital is one of the company's chief competitive advantages.
According to a Forbes article, "Visa Credit Card Itching For China Yuan Business," in mid-2013, the Chinese government finally started allowing certain banks to issue cards other than UnionPay -- this effectively ended UnionPay's monopoly in China.
While Visa and MasterCard are itching for an uphill battle against UnionPay, American Express' more niche approach to the lesser-tapped traveler's market may be more fruitful.
Brazil has garnered attention as the strongest Latin American market, and American Express has been able to expand business by leveraging bank partnerships.
Specifically, American Express is working with Cielo, which, according to Chenault, "[has] substantially expanded our merchant acceptance." Cielo was created through the combined efforts of a few major Brazilian banks and Visa. The two companies -- according to "Visa Get Ready For New Landscape" on BNAmericas.com -- severed its exclusive agreement back in 2010.
Cielo has since become one of the two most powerful players in the Brazilian card market. The other major player is Redecard, which has been aligned with MasterCard for years.
The payment landscape in Brazil is as diverse as it is competitive. However, according to Frommer's guide to money in Brazil, Visa and MasterCard are the safest bets for travelers, and therefore have the stronger current penetration in the market.
Credit cards can be broken up into international players -- like Visa, MasterCard, and American Express -- and more regional players like Discover in the United States and JCB in Japan, although both of those are attempting go global.
American Express has seen significant growth in Japan, though the country's economy is not "growing in a robust way." American Express' deal with JCB gives American Express equal coverage in Japan.
Similar to other emerging markets, Frommer's guide to Japan lists Visa and MasterCard as the most readily accepted cards. And according to the "World Payments Report 2013," the number of non-cash transaction per inhabitant in Japan is up 11.3% from 2010 to 2011. This is just three percentage points lower than the country's non-cash transaction growth from 2005 to 2010. Meaning there should be plenty of new market share for the companies to fight over.
What company has the most to gain?
For investors interested in payments, all three markets will be worth keeping an eye on. Especially China, which has opened up the payments space to competition, and it'll be interesting to see if there's enough UnionPay loyalty to keep Visa from dominating market share -- as it has in other parts of the world.
While MasterCard and Visa are the dominant world brand, American Express has done a lot to increase its position, and still has the most potential for growth in these markets. For that reason -- at least in this investor's opinion -- American Express is the best-postitioned of the three.