General Investing
Finding Global Opportunity in the Payments Processing Space
March 15, 2010Positive domestic data and gaping growth opportunity overseas may help electronic payments companies like Visa (V) and MasterCard (MC) beat expectations through 2010 and into 2011.
According to Signal Hill Capital Group Senior Analyst Mayank Tandon, emerging markets, particularly those in Latin America and Asia-Pacific, are the perfect playing grounds for companies that wish to latch on to increasing card penetration trends.
“Based on the industry data that we track, card penetration is about 3.5 cards per capita, for example, in the U.S., and it’s less than 0.5 in emerging markets, such as China and India,” Tandon said. “As we look forward, we expect card transactions, both credit, debit and prepaid, to grow at a low-double-digit rate worldwide, with Latin America and Asia Pacific leading the way with high-teens growth rates because of its very low penetration levels today.”
Domestic retail sales data also gives Tandon reason to be optimistic, with evidence of improving consumer spending and positive fourth-quarter retail sales figures emerging.
“While the jury is still out on whether the consumer will continue to spend, recent trends are encouraging,” said Tandon, adding that good news doesn’t mean the payments processing industry is out of the woods yet. Stalled or reverse consumer spending trends would force these companies to once again turn introspective and closely manage costs.
“These companies are already running pretty lean and mean, but at the same time, what they’ll have to do is manage operating expenses and also target those markets, the markets that we talked about, internationally that might offer better growth opportunities than the developed markets of the U.S. and Western Europe,” Tandon said. “But to reiterate, these companies did a very good job of managing expenses during the recession and therefore were able to grow earnings even in the face of very slow revenue growth or down revenue growth.”
