Profiting From Growth
The increasing proliferation of wireless devices and mobile solutions is just one trend driving growth in the electronic payments industry. Others include the overall shift around the world away from cash and checks toward electronic transactions, the rapid penetration of electronic payments in emerging markets as those economies modernize, and the increasing focus on security to combat fraud and identity theft.
You can see the growth in the numbers. The total number of transactions completed by Visa on its networks has risen from 29.2 billion five years ago to 50.9 billion in the fiscal year that ended last September 30. That’s an average increase of 11.75% per year.
Even more impressive growth has come in online cash payment systems, the largest being PayPal, a subsidiary of eBay (NASDAQ:EBAY), which is one of the stocks I’m recommending to you this month.
The total dollars processed through eBay’s payment business increased from $12.2 billion in 2003 to $118.75 billion in 2011, a huge 873% jump overall that averages out to 28.7% per year. Growth remains strong. In their first-quarter earnings released last week, eBay reported that the payments division processed orders of $33.86 billion in the first quarter, up nearly 24% from the year before. We’ll talk much more about PayPal and EBAY in just a moment.
Jack Henry (NASDAQ:JKHY) also benefits nicely from electronic payment services. JKHY derived $93.8 million in revenues last fiscal year from such services, which include processing ATM, debit and credit card transactions. That was solid growth of 12% and comprised nearly 10% of overall revenues, so it’s an excellent complement to the company’s traditional data processing services for banks. The company also has its own little version of PayPal called iPay Technologies, which provides online bill-pay services.
There are a couple of other companies on our Buy List I should also mention because, even though they are not directly involved in electronic transactions, they are certainly riding some of the related trends.
First, the data created by more electronic transactions helps EMC (NYSE:EMC) A key driver of EMC’s growth is “Big Data,” as additional information to be processed and analyzed is overflowing the data centers of major corporations. EMC’s storage software and hardware help corporations manage this data explosion, much of which comes from ecommerce.
The other company is Synchronoss Technologies (NASDAQ:SNCR), which benefits from the explosion in mobile phones through activations and content.
It’s also time for us to buy the best and most direct play on electronic payment processing, a company with a good history and an even more promising future. Let’s talk about that now and then look more closely at EBAY.