Visa and Mastercard both grow 14 percent and still trail the market

Visa and Mastercard have presented their quarterly figures and each achieved revenue growth of 14 percent against the year before. Both shares have nevertheless performed worse than the wider market this year.

Visa reported net revenue of 11.6 billion dollars for its third financial quarter. Total payment volume rose ten percent and cross border volume 13 percent.

Mastercard reached net revenue of 9.3 billion dollars in the second quarter. Payment volume grew eight percent and cross border volume twelve percent.

The short version

• Both groups lifted revenue 14 percent, Visa to 11.6 billion dollars and Mastercard to 9.3 billion dollars.
• Revenue from value added services grew 36 percent at Visa and 20 percent at Mastercard.
• The net margin of Visa fell from 51.8 to 48.4 percent, while the Mastercard margin rose from 45.5 to 47.3 percent.

Value added services grow much faster

The most interesting part of both reports is not in payments but in the supporting services. These include consulting, security products and market analysis.

At Visa revenue in this area rose 36 percent, at Mastercard 20 percent. Both companies therefore earn increasingly from services that do not depend on the number of transactions processed.

Margins move in opposite directions

On profitability the two are drifting apart. The net margin of Visa fell from 51.8 percent in the year earlier quarter to 48.4 percent, because operating costs rose 19 percent, mostly on staff.

Mastercard by contrast improved its net margin from 45.5 to 47.3 percent. Over five years operating profit has grown considerably faster there than at Visa.

It is also striking that the ratio of debt to equity at Mastercard rose to 4.40 in the second quarter.

A purchase for 2.4 billion dollars

At the start of August Visa announced the acquisition of the security company BioCatch for 2.4 billion dollars. The background is the increase in fraud cases in which artificial intelligence is used.

The share rose after the announcement. Truist raised its price target at the start of August from 394 to 406 dollars. The paper last traded at 364.25 dollars. The range of the past twelve months runs from 293.89 to 373.97 dollars.

At Mastercard the price targets of analysts lie between 597 and 680 dollars. Berkshire Hathaway has recently sold its holding in the company.

Bill Ackman by contrast has bought into Mastercard.

Europe works on its own payment routes

One risk that is gaining weight comes from Europe. The European Central Bank and political decision makers are pushing projects meant to reduce the dependence on American card networks.

Europe is an important market for cross border payments for both companies, which is precisely the area that delivers the highest margins.

On top of that comes a technical shift. Value stable digital currencies are increasingly used for settlement. Visa has presented a card programme together with partners that settles in such a currency, and it was named alongside BlackRock as one of the first partners of a corresponding project.

Consumers are borrowing more

One point from the environment of both companies concerns the customer side. Credit card debt in the United States has reached 1.26 trillion dollars.

At American Express it showed recently how sensitively the market reacts. The card provider beat expectations in the second quarter with 4.53 dollars per share against an expected 4.40 dollars. Spending by cardholders rose nine percent to 455.8 billion dollars, the strongest increase in three years. The share fell six percent afterwards, because the additional revenue went into growth spending rather than into profit.

Frequently asked questions

What are the value added services of the card networks

They include consulting, security products and market analysis. This revenue does not depend on the number of transactions processed. At Visa it rose 36 percent, at Mastercard 20 percent.

Why are the margins drifting apart

The net margin of Visa fell from 51.8 to 48.4 percent because operating costs rose 19 percent, mostly on staff. Mastercard by contrast improved its net margin from 45.5 to 47.3 percent. Over five years operating profit has grown considerably faster there.

What risk comes out of Europe

The European Central Bank and political decision makers are pushing projects meant to reduce the dependence on American card networks. Europe is an important market for cross border payments for both companies, which is precisely the area with the highest margins.

This analysis is for information only and is not investment advice.