Visa and Mastercard accumulate significant falls in the stock market as the problems do not stop multiplying in the last month. Disappointing results, the economic recovery hampered by the covid (and therefore consumption) and Amazon has cut ties with Visa due to its high commissions. All in a historic moment for the sector, as it faces a change in the cycle with the entry of a generation that no longer uses credit cards. Some e-commerce experts, with all this on the table, openly speak of a clear crisis, but analysts reinforce positions and maintain their confidence.
From October 25, the day of the presentation of results, Visa has already dropped almost 14% in a bag. After a limping summer, this was the thrust to make the one who was supposed to be one of the protagonists on the floor in 2021 to already yield 7% this year. The course of Mastercard is similar, with a drop of 8% since the end of October and 5% annually.
Despite this downward trend, the opinion of analysts is unchanged. In the case of Visa, 100% of the Bloomberg consensus is committed to buying and believes that it is necessary to reinforce with the falls because prices are low. If the actions right now trade at $ 203.86, the average of the analysts gives it a value of 274 dollars and, more importantly, they have not revised down this price at any time since the falls began.
The case of Mastercard is similar, 88% of analysts They recommend buying because the stock is cheap and only 12% ask to wait, none recommend selling. As with Visa, experts have not touched the target prices of this company, which they believe should be at $ 430 compared to the 338 at which it is currently listed. A very important return envelope that indicates that there is still room for credit cards.
Mikko Ripatti, Head of Spain and Senior Manager of Client Portfolios at DNB Asset Management, argues that the challenges exist but that the large size and global presence of these two companies removes concerns in the short and medium term. “Together they have a market share of 90% excluding China” and affirms that, despite everything, their source of income is very stable.
Ripatti explains that they believe that their good evolution has been completely cut off for a host of circumstantial reasons. “Many investors have sold for focus on buying bank securities given the possibility of a rate hike. “In addition, they believe that economic reactivation is essential because, with more consumption and transactions, their income rises. Despite the evolution of the Delta variant and the arrival of new restrictions, they believe that recovery will come and there is only one stop along the way, in short, “the positive view of these companies is still valid,” even if the market does not share it.
However, the rebellion of Amazon has been one of the elements that have pushed the price of these companies the most. The E-Commerce giant has vetoed Visa payments after doing the same in Australia and Singapore. The reason is the high commissions it maintains and the market believes there is a possibility that this problem can be globalized. In the British country the problem is greater because Visa began to charge an additional 1.5% in cross-border payments with Europe due to Brexit, which annulled European regulations. In countries like Spain, the standard exchange commissions abroad are 076% and 0.3% for the consumer.
This decision of the company founded by Jeff Bezos comes in a critical moment after poor results businesses that fell short of forecasts and at a time when companies are facing one of the greatest challenges in their history.
The end of the cards?
Roger De’Ath, Head of ecommerce for the instant payments platform, TrueLayer defends that what is happening with Amazon is the beginning of the end of the domain in credit card payments. “The harsh truth is that they have already reached their expiration date in a world of instant payments and borderless commerce.” In this sense, he remarks that the fact that the costs of using Visa or MasterCard are being seen in the negotiation with Amazon shows “that there is an unnecessary network of hidden costs and inefficient payment structures for the customer experience.”
From the Bain consultancy they agree that complicated times are coming for credit cards. They have recently released their report “No credit card is the new credit card”, which shows as last year the number of young people (under 25 years) who abandoned the cards to switch to alternative payment methods skyrocketed 83%. And they believe that “as the younger generations age this process will continue to grow.”
“Cards will follow the same path as DVDs versus Streaming”
In fact they believe that “there are many signs that are indicating that the cards will follow the same path as DVDs versus Streaming”. For this reason, they affirm that if companies do not adapt to these new mechanisms payments such as e-wallets or deferred payments, it is possible that they are left far behind and that they live a really complicated situation.
From DNB Asset Management, although they recognize that the risks of a historical change for the sector are getting closer and closer, remove iron from the impact they can have on Visa and Mastercard, who believe that they can adapt to new times and that, consequently, analysts continue to bet on these brands almost unanimously.
“Without a doubt the interest is there but in the short term the impact of this new activity will be even good for these companies, because it is associated with many of the new companies.” In addition, from DNB they remember that “MasterCard has recently launched your own long-term payment system“. For this reason, although they recognize that the tight control that these companies have can be lost in the long run with the entry of new players,” it is something that is not going to happen anytime soon. “