As Americans still come to terms with the impact of the massive Target customer data breach, Visa and MasterCard have each announced efforts to enhance the security and protection they offer to consumers who use their cards. While this will help consumers, it will help investors as well.
MasterCard announced last week it would extend its zero liability protection to include ATM transactions, while also ensuring all U.S. holders of its cards -- credit, debit, prepaid, and small business -- will also have access to its identity theft program in the event a card is lost or stolen.
Remember, just a few months ago the two companies revealed they would partner to launch a "cross-industry group focused on enhancing payment system security to keep pace with the expectations of consumers, retailers and financial institutions."
Often investors will view announcements like these warily, as these programs are costly, but this effort may yield major returns in the years to come.
The reason for optimism
Jason Oxman, head of the Electronic Transactions Association, which represents institutions that processed more than $4 trillion in payments in the U.S. last year, recently remarked that "there's been a lot of high-profile media coverage of retail breaches, and that makes consumers nervous."
Nervous consumers could be more cautious about using their credit or debit cards at retailers, perhaps relying increasingly on cash.
Visa and MasterCard earn their money when the cards are swiped. Fewer swipes due to users fearful about data security means less revenue.
Greater efforts by Visa and MasterCard on the underlying security of their payments system should give more assurance to consumers, enabling them to comfortably use their cards. That means more revenue for the payment processors. In fact, part of the reason for the remarkable first first three months of the year for both Visa and MasterCard was that their payment volume increased by 11.8% and 12.7%, respectively.
While it's tough to find the exact cost of the investments the companies are making to ensure their networks are more secure, investors should trust that these efforts will not only help protect Visa and MasterCard, but could be one key thing to continue growing their top line.
Patrick Morris has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.