There is a major ongoing shift towards electronic payments from cash and check payments. Companies like Mastercard, which is the second-largest processor of payments in the world, stand to benefit from this trend. On a global basis, it is estimated that digital payments have surpassed cash payments around 2018. So, the trend has just begun and is expected to continue for a while. The good thing about Mastercard is that the company earns revenue regardless of whether the payment method is credit, debit, or mobile. It has built a network and positioned itself such that smaller internal shifts within digital payments do not affect it.
Not Everything is Rosy Either
While Mastercard clearly has a strong moat and a spectacular growth rate in recent times, the company also faces some serious headwinds in the short term. The outbreak of the pandemic has crippled international travel. As a result, the relatively more lucrative cross-border transactions on Mastercard’s network have dropped significantly. It is still not clear when international travel will reach the pre-pandemic levels and when Mastercard will see the kind of numbers that it used to from cross-border transactions.
Secondly, Mastercard’s business is closely linked to the health of the overall economy. A strong economy means a greater frequency of transactions. A downturn in the economy, like the one caused by the pandemic, poses a near-term growth hurdle for Mastercard.
How Is The Best Credit Card Stock 2020 Performing?
Mastercard’s stock has gained about 18% over the last 1 year. However, on a 5-year basis, it has gone from around $94 to $340, a jump of more than 3X. The stock has remained in a range over the past month and is down 1%. If we compare Mastercard with its biggest competitor Visa, then Visa is also flat on a monthly basis. Over the past year, Visa is up 16%, and on a 5-year basis, the stock has gone from $76 to $212.