The coronavirus pandemic has caused mass economic uncertainty worldwide, and with millions unemployed, consumer and business spending has been hit hard.
The ongoing coronavirus pandemic has been detrimental to a lot of different industries. With consumer spending dropping by a record 16% in the U.S. in April, this naturally is having an impact on the likes of Visa (NYSE: V) and Mastercard (NYSE: MA), as all signs point to a poor second and third quarter for the payment giants.
Visa: Bull vs Bear
Visa got off to a fast start in 2020, with revenue increasing by 7% for Q1 year-on-year up to $5.85 billion. Its total number of processed transactions also grew rapidly. However, by April , total transactions dropped by 30% as the pandemic lockdown swung into effect.
Declines slowed by the end of April, with total transactions only falling 20% year-on-year and U.S. payments volume only down 10%. However, cross-border transactions were still deflated by 40%.
Visa is the payments leader in the U.S., with 60% market share. It has a strong balance sheet, with $12.2 billion in unrestricted cash and equivalents and a very healthy net income margin of 52.7%. Shareholders will still get cash returns on their investments, with management still planning to proceed with a total share buy-back of $9 billion by year-end.
The continued move away from cash will also benefit Visa. It saw a 40% increase in the use of contactless technology in Q1 and volume for card-not-present transactions (excluding the travel sector) increased by almost 30% cross-border and in the U.S. in April. E-commerce and emerging technologies will only generate further growth opportunities for Visa going forward.
Visa’s share price hit an all-time high in January before dropping by 35% as the pandemic set in. Since the start of April, Visa has risen 26%.
Mastercard: Bull vs Bear
Like Visa, Mastercard also had a good start to the year but has seen its activity hampered by the ongoing pandemic. There was a 5% year-on-year revenue increase in Q1, and it is also benefiting from the move away from cash payments, with its card-not-present transactions making up 50% of total volume in April, up 40% year-on-year. The company saw contactless transactions rise 40% in Q1, with minimum-spend limits being raised.
The ‘other revenues’ for Mastercard also rose by 26% for the period. These revenues do not have a link to transaction volume, instead focusing on analysis, loyalty, and risk services.
One of the company’s latest moves has seen the launch of a new B2B payments platform called Mastercard Track Business Payment Service, initially launching in the U.S. market. This is the latest effort to capture a vital share of this growing segment.
Mastercard’s share price hit all-time highs in January but fell by over 31% as the pandemic kicked in. Since the end of March, the price has been up about 17%, but it still has some ways to go before getting back to its previous high.
Invest in Visa or Mastercard?
These companies will only benefit from the continuing move away from cash and retail commerce over to contactless and card payments. In 2010, about 28% of consumer purchases (outside of China) were made through digital payment. This was about 43% by January 2020. There may be a while to wait yet, but it is only a matter of time before consumer spending gets back to pre-pandemic levels.
Both Visa and Mastercard look to be good investments at this moment in time. At current prices, Mastercard looks like the better option in the short-term, however, Visa is entrenched as the market leader and it is only going to grow and grow as time goes on.
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