Visa leads the world in the extremely lucrative payments processing market. But as consumer habits change, and financial technology develops, the company faces serious long-term threats from its rivals.
Feb. 10, 2020
Back in 2016, Visa (NYSE: V) executive Nicolas Huss was asked which company he considered to be the payment giant’s number one competitor. Instead of listing off the usual suspects, or any individual company at all, Huss simply said: “Our main competition is cash.” It was a moment of confidence — some might say bravado — to rival Reed Hastings’ famous assertion that Netflix’s only true foe is sleep. In reality, though, Visa’s dilemma is a little more complicated. The payment processing space has changed massively in recent memory, and the company faces a range of threats and opportunities that no one, not even Huss, could have foreseen just a few short decades ago.
Let’s look at three of Visa’s most significant rivals in the ongoing contest over the future of payments.
Visa currently dominates the payments processing market, but its age-old rival Mastercard (NYSE: MA) is in a not-too-distant second place. Indeed, the two giants have a lot in common. A quick glance at each company’s most recent quarterly earnings report reveals close parallels, such as 14% year-on-year revenue growth for Visa and 16% for Mastercard.
Visa is still the top dog in gross dollar volume (GDV) — that is, the total dollar amount of transactions made with a company’s branded cards — but Mastercard remains a global leader by any standards, boasting a phenomenal $6.5 trillion GDV in 2019. More importantly, for investors, Mastercard has plenty of room for further growth. Having already gained an enormous share in the consumer market, the company recently partnered with Apple (NASDAQ: AAPL) to provide a payment infrastructure for the Apple Card.
If that weren’t enough, Mastercard is frequently cited as one of the world’s most admired companies for its efforts in building a cashless future. Central to this future, no doubt, will be the blockchain. Though no one can say how exactly this financial innovation will affect the future of transactions, Mastercard is well-positioned to benefit. The company’s acquisition of money transfer firm Transfast, and its subsequent partnership with blockchain startup R3, will give it maximum access to whatever opportunities arise in our changing payment landscape.
2. American Express
Though smaller than either Visa or Mastercard, American Express (NYSE: AXP) nonetheless counts itself as one of the ‘Big Four’ credit card networks, the fourth being Discover (NYSE: DFS). Something of a luxury alternative to the market leaders, AmEx offers a range of unique services to cardholders such as extended warranty protection, travel insurance, and even Uber (NYSE: UBER) credits.
Despite a rise in worldwide geopolitical and economic tensions, American Express just closed off a fairly triumphant year, having added 11.5 million new proprietary cards to its database in 2019. On top of that, the company surpassed analyst expectations across all key metrics, with a notable 12% jump in annual profit.
Perhaps most excitingly, the company’s application to begin operations in China was accepted last month. With access to a $27 trillion market — and one with a penchant for chasing high-value brand names — the next decade looks interesting for American Express.
Founded back in 1998, at a time when e-commerce was still a fairly insignificant market, PayPal Holdings (NASDAQ: PYPL) has become synonymous with digital payments globally. The company remains an unavoidable presence, with more than 300 million active accounts to its name, mostly driven by its core PayPal brand and its popular money transfer app, Venmo.
Visa currently has over 3 billion branded cards in circulation, which places its reach an order of magnitude above PayPal’s. However, the Silicon Valley darling has substantial room for growth, especially through Venmo, a largely free service with a huge millennial following and substantial monetization potential. Indeed, Venmo will pose a more direct challenge to Visa in the coming months with the roll-out of its new Venmo credit card.
As a pioneer Internet company, PayPal managed to survive the Dot Com Bubble, as well as two decades’ worth of disruptive upstarts. Though a different kind of competitor to Visa, it remains a central one in the overlapping worlds of finance and technology.
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