Visa Inc (NYSE:V) was fintech before fintech was cool. Visa stock has benefited from the company’s fintech leadership. Credit card processing, which began through banks and became an industry unto itself, has been insanely profitable since Visa itself went public in 2008.

Shares that traded in the low teens almost a decade ago now trade at nearly 10 times that figure, and the company has delivered a steady dividend.

Visa is the unquestioned leader in the processing industry. It sets the standards. When it says jump its “rivals” ask how high?

But new fintech operators pose a problem. They are looking to undercut the company’s per-transaction charges and discounts, interest on customers’ payments processors take out of merchants’ checks when transactions finally clear.

The problem is not acute in the U.S. and Europe, but in Asia, where credit networks are less developed and where global growth is centered, it’s a different story.

Visa Stock and the India Problem

Problems are centered in India, where local banks, organized as the National Payments Corp., have rolled out a Unified Payments Interface (UPI) and a card payment system called RuPay, challenging the dominance of Visa and MasterCard Inc. (NYSE:MA). Lower charges are one reason for growth, India’s decision to stop circulation of high-denomination currency is another

UPI is outpacing Visa in India, and, because it’s built around mobile phones, brought quick support from Alphabet Inc (NASDAQ:GOOGL) and Facebook, Inc. (NASDAQ:FB), with a host of third party apps now appearing.

The rise of UPI highlights both the costs of the present card-based payment system and the possibility of it being bypassed. The rise of EMV chip-based cards has increased costs in the U.S. market even while it has cut fraudulent payments, allowing the risk of fraud to switch from merchants’ banks to customer banks.

The question now is what comes next and, trouble is, the answer is clearly mobile payments, making lower-cost platforms viable. Early fintech start-ups like Square Inc. (NASDAQ:SQ) used the existing payments infrastructure, benefitting Visa stock as well as others. Newer fintech start-ups, especially those built around blockchain, want to bypass it.

Getting on Board

So far, none of this has taken a bite out of the profitability of Visa stock.

The company reports earnings for the March quarter on April 25, with analysts expecting $1.02 per share of earnings on $4.78 billion of revenue and hoping for $1.04. Visa has made a habit of blowing past estimates the last several quarters, often by a lot, which drove the stock up by one-third during 2018.

Over the last three months, however, as the stock market in general has fallen, the Dow being off almost 7%, Visa stock has gone nowhere. Going nowhere while others go down, however, is a victory. Of the 36 analysts now following the stock, 29 have it on their buy lists, and none have it as less than a hold.

The Bottom Line

Transaction processing growth is dependent on a rising economy, and so long as the U.S. avoids recession, Visa will continue to do well. Rising interest rates will also help.

The question is what happens after. When recessions hit, companies become hyper-focused on every dollar, and the pennies it takes to transact business are no exception. Visa is supporting a common user interface for tokenized payments on phones, and if it can be rolled out quickly that should help hold western markets.

Markets other than India are after those pennies and willing to go to parts of pennies to win in their home markets. Africa may wind up going the India route, with innovation based in Kenya, and fintech is also rising in Latin America. 

So long as the economic party continues in the U.S. and Europe, rising interest rates and transactions should keep Visa stock riding high. The longer-range future, however, heralds a global battle for mobile phones where costly infrastructure is no longer an advantage.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.