The Financial Transaction Services industry is well-poised for growth on the back of increased consumer spending, digitalization, mergers and acquisitions, and an overall stable economy. The industry has been a beneficiary of the pandemic so far, helping people shop online and maintain social distancing.
Although the companies suffered to some extent last year due to reduced spending and lower employment levels, the space is now brimming with opportunities.
Even though the stores reopened and customers are visiting again, most are sticking to noncash payment modes. The shift away from cash, which was already well underway before the pandemic began, now became more apparent.
Moreover, the companies in the payments space are pure plays that are highly dependent on growth in e-commerce and digital payments.
According to Meticulous Research, the global e-commerce market is expected to reach $16,215.6 billion by 2027, seeing a CAGR of 22.9% during the 2020-2027 forecast period.
The payments industry is also embracing crypto and digital currencies. In the first half of the year, the players gained from a higher payments volume, processed transactions and cross-border volumes, increasing net new active accounts, better portfolio strength, solid contributions by segments and robust credit performances.
Now let’s see the factors that will impact the payments players’ results in the upcoming months.
Factors Likely to Impact Payment Stocks in 2H
Rising Digital Payments: Digital payments have become the new normal and cash payments have dropped considerably since the coronavirus outbreak. The same is also way more flexible than carrying cash.
Increased adoption of e-commerce bodes well for the companies in the financial transaction services industry as it is present at different nodal points of the full payment ecosystem, making online transactions successful.
Consolidations: Mergers and acquisitions have always been prominent in the payments industry as players try to add scale to capture a larger market share.
Companies are also resorting to M&A activities to diversify beyond their niche areas and create revenue sources in multiple domains. For instance, companies that were more active in travel and entertainment categories suffered the most last year. Thus, having a varied customer base is crucial to a sustainable business.
Investment in Technology: The payments industry has started investing in technology for quite some time now. It is undergoing a substantial and rapid technological change in mobile and in-app payment technologies, e-commerce, tokenization, cryptocurrencies, and blockchain technologies, AI and the new authentication technologies, such as biometrics, etc.
As a result, we expect new services and technologies to continue to emerge and evolve, placing the companies at different points in the payment ecosystem for solid growth. Uptake of technology is also expected to reduce fraudulent practices.
Real-time payments are the electronic/digital payments that allow speedy transfer of funds with the help of a safe payment gateway. The global real-time payments market size is expected to reach $62.5 billion by 2026, witnessing a 32.3% CAGR during the 2020-2026 forecast period.
We think that the future for the space remains bright.
Stocks on the Watchlist
The industry’s progress has been consistent so far and there are plenty of opportunities for its players to grow in the future as well. Thus investing in this space should be a wise choice.
Let us take a look at the stocks that should be on investors’ radar right now. Here we pick four options that have a Zacks Rank #3 (Hold) and also witnessed northward earnings estimates over the past 60 days. Therefore, these companies hold great potential to retain a purple patch going forward.
Mastercard Inc.MA is a leading global payment solutions company that provides an array of services in support of the credit, debit, mobile, web-based and contactless payments, and other related electronic payment programs to financial institutions and other entities. Over the past 60 days, it has witnessed its 2021 and 2022 earnings estimate move 4.6% and 2.1% north, respectively. Earnings of the company managed to beat estimates in three of its trailing four quarters, missing the mark in one, the average surprise being 7.8%. Its strategic acquisitions, alliances and technology upgrades along with product-diversification and geographic-expansion initiatives augur well for the long term. Shares have gained 6.9% in the past year against the industry’s decline of 3.6%.
Visa Inc. V operates the retail electronic payments network worldwide. The company continues to benefit from numerous buyouts, solid business volumes, investment in digital technology and balance sheet strength. It has a VGM Score of B at present. Over the past 60 days, the stock has witnessed its 2021 and 2022 earnings estimates climb 3.7% and 2.6% upward, respectively. The bottom line managed to deliver a four-quarter earnings surprise of 9.03%, on average. The stock has rallied 14% in the past year.
New York-based American Express Company AXP is a diversified financial services company, offering charge and credit payment card products, etc. worldwide. It has a VGM Score of B. The company’s earnings surpassed estimates in three of the last four quarters, missing the mark in the remaining one, the average beat being 26.88%. Over the past 60 days, the stock has witnessed its 2021 and 2022 earnings estimates rise 16.2% and 2.2%, respectively. In the past year, the stock has soared 58.2%. Decrease in marketing expense, and card member services, favorable debt ratings and a solid capital position are some of the positives.
Founded in 1984, Fiserv Inc. FISV provides financial services technology solutions to more than 12,000 clients worldwide in the banking, insurance, healthcare and investment industries. The company continues to widen its client base and enhance its product portfolio with the help of buyouts. It has a VGM Score of B. It managed to come up with a trailing four-quarter surprise of 3.72%, on average. Shares have gained 23.6% in the past year. Over the past 60 days, the stock has witnessed its 2021 and 2022 earnings estimates move 2% and 1.1% north, respectively.
Image Source: Zacks Investment Research
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.