The big technological “buzz” these days is over new ways to pay for goods and services via smartphone. The smartphone has transformed myriad aspects of our daily lives, so it was inevitable that this “disruptive technology” would affect the consumer’s point-of-sale experience as well.
Visa (V) is an all-pervasive brand best known for its eponymous credit card, but it’s also a diverse payments technology company that aggressively embraces the latest innovations in payments and cyber security. Rather than get knocked off its perch as the largest company of its type, Visa adeptly co-opts any threats on the horizon, making it a wise financial stock investment over the long haul.
Case in point: Visa recently partnered with Apple (AAPL) to unveil the much-ballyhooed Apple Pay, a new mobile payments platform. These proactive strategic moves help give Visa a jump on smaller rivals such as MasterCard (MA).
Some consumers still harbor misconceptions about Visa. The fact is, the company is not a bank, does not issue cards, and does not extend credit or set rates and fees for consumers. Visa links businesses with consumers in more than 200 countries through fast and secure electronic payments. VisaNet, the company’s processing network, can reliably handle more than 30,000 transaction messages per second.
As payment through mobile devices becomes more popular, concerns are rising over fraud. Cyber crime is a growing threat around the world; companies such as Visa are expected to step up to the plate and mitigate the problem and prove the safety of their systems. Lack of consumer trust can be fatal to a company such as Visa.
That’s why Visa has been in the forefront of cyber security. Most recently, Visa has adopted “smart cards” (also known as chip cards) embedded with integrated circuits that enhance security and help prevent fraud.
Holding Strong Cards
Visa this week reported fourth quarter earnings for fiscal 2013 (ending September 30) that beat the consensus estimate.
The company reported $2.18 in earnings per share (EPS) in the quarter on $3.23 billion in revenue, blowing past Wall Street’s projections of $2.10 in EPS on $3.19 billion in revenue. Visa also announced a new $5 billion stock buyback program. Some highlights:
- Payments volume (on a constant dollar basis) reached $1.2 trillion in the fourth quarter, an increase of 11% compared to the same quarter a year ago.
- Revenue from total processed transactions hit $17 billion, an increase of 9% compared to the year-ago quarter.
- International transaction revenue was $899 million, a year-over-year increase of 12.9%.
- Lastly, service revenue from clients’ transaction fees came in at $1.5 billion, up from $1.39 billion in same quarter last year.
Management projected that full-year fiscal 2015 earnings would grow in the low double digits. The company cited lingering recession worries in Europe as the main reason for its modest full-year growth predictions. Regardless, the company is in the vanguard of electronic payment innovations and should prosper as consumers rely on its trusted name via smartphone payment systems.
The rise of an affluent middle class in emerging markets, especially in Asia, also is a long-term boon for the company, as overseas consumers seek to mimic their counterparts in the West and rely on Visa to buy goods and services.
The Bottom Line
As the world increasingly moves toward a cashless and checkless society, Visa’s status as the largest and most innovative electronic payments company on the planet positions it to benefit the most.
Visa’s close partnership with Apple is another long-term plus that gives it an edge over competitors, as Visa and the consumer-savvy tech giant in Cupertino make major forays into the burgeoning arena of smartphone payments.
What’s more, Visa’s conscientious attention to safety and security strengthens its relationships with cardholders, merchants and issuers, who look for trust in an electronic environment made insecure by cyber hacking and theft.
Combined with recent robust operating results, this company’s inherent strengths make it a solid long-term bet on the payment revolution.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
