The  Financial Transaction Services industry is well-poised for growth on the surge in digital payments, increasing transaction volumes, a diversified product and solutions suite and higher consumer spending. Consumer confidence has improved gradually with more people getting vaccinated and business prospects thriving. In fact, per the University of Michigan, the consumer sentiment index stood at 70.6 in December, higher than the November 2021 reading of 67.4. A stable consumer spending is directly proportional to revenue growth for the companies in the payments space.As per published reports, individuals are also expecting more jobs in the coming few months owing to the rebounding economy despite the new Omicron variant. Persistent inflation is an added woe in the Unites States, which hit 6.8% in November of 2021, the highest since the June of 1982.

Despite such headwinds, leading companies like Visa Inc. (V Quick QuoteV - Free Report) , American Express Company (AXP Quick QuoteAXP - Free Report) , Fiserv Inc. and Global Payments Inc. (GPN Quick QuoteGPN - Free Report) are poised to benefit.

Also, experts’ forecasts for the current economic condition and their expectations improved. More Americans are spending on vacation and entertainment, which set buoyancy in the space. Moreover, the companies continue to gain from the soaring holiday sales. Per Mastercard SpendingPulse, holiday retail sales, excluding automotive, increased 8.5% this holiday season while online sales climbed 11%, both on a year-over-year basis.

Industry Description

The Zacks Financial Transaction Services industry is part of the Financial Technology or FinTech space, which includes several companies with varying nature of businesses. The industry includes card and payment processors, ATM service providers, card payment solution providers, money remittance service providers, and providers of investment solutions and services to financial advisors. The players in this segment operate their unique and proprietary global payments’ network that links issuers and acquirers around the globe to facilitate the switching of transactions, permitting account holders to use their products at millions of acceptance locations worldwide. Monetary transactions are effectuated through these networks, offering a convenient, quick and secure payment method in several currencies across the globe.


 

4 Financial Transaction Services Industry Trends That Will Likely Rule 2022

Digital Payments to Drive the Payments Space, Get a Boost From E-commerce: E-commerce and digital payments are the new normal now. People are invariably sticking to the online payments option because of the flexibility and options it provides with. It is no longer just a way to contain the spread of the virus. Increased adoption of e-commerce bodes well for the financial transaction services industry as they are present at different nodal points of the full payment ecosystem, making online transactions successful. Per MarketsandMarkets, the worldwide digital payment market is anticipated to witness a CAGR of 15.2% over the 2021-2026 period.

Cryptocurrency: The financial transaction services space is witnessing a surge in demand for cryptocurrency. Thus, more companies are investing in the same. There was a time when this digital currency was not widely accepted but of late, there has been a remarkable change in the perception of investors regarding crypto products. With cash and checks taking a backseat, flexible payment options, such as cryptocurrencies came to the forefront. Leading players like Visa and Mastercard are making the most of this opportunity and taking measures to include crypto products in their portfolios.
Earlier this month, Visa unveiled Global Crypto Advisory Practice to assist clients and partners with financial decisions regarding crypto products. Investors’ optimism on cryptocurrency, the alternative mode of payment unaffected by the pandemic, also projects that it might become a common investment option soon.

Consistent Technological Investments: The payments space is undergoing a substantial change with the uptake of technological advancements. It is investing in mobile and in-app payment technologies as well as new authentication technologies like biometrics. Companies consistently invest in AI to help detect and prevent frauds. Advancements in these fields should continue to improve the risk tools and solutions, and prevent deceptions in the entire payments ecosystem, thereby making it more agile and hassle free. Technology is also being deployed to make real-time payments services available far and wide. Per MarketsandMarkets, the real-time payments market is expected to reach $ 25.9 billion by 2023.

Consolidation: Mergers and acquisitions are rife in the payments industry as players try to build scale to capture a larger market share. Companies in this space take initiatives to explore capabilities beyond their individual niches and diversify their product offerings. This is important to bolster one’s presence in the market and having a varied portfolio helps fetch better revenues. This, in turn, is likely to aid margins in the future.

Zacks Industry Rank Indicates Weak Prospects

The Zacks Financial Transaction Services industry is housed within the broader Zacks Business Services sector. It carries a Zacks Industry Rank #172, which places it in the bottom 32% of the 252 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 32% of the Zacks-ranked industries is a result of a negative earnings per share outlook for the constituent companies in aggregate.

Before we present a few stocks that you may still want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and its valuation picture.

Industry Outperforms Sector but Lags the S&P 500

The Financial Transaction Services industry has outperformed the broader Zacks Business Services sector but lagged the Zacks S&P 500 composite over the past year.

The industry has declined 20.7% over this period against the Zacks S&P 500 composite Index’s gain of 29.5%. However, the broader sector has lost 34.4%.

One Year Price Performance

 

Industry's Current Valuation

Comparing with the Zacks S&P 500 composite Index on the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for the industry, we see that the industry’s ratio of 41.26X is higher than the S&P 500’s 23.81X but lower than the sector’s 45.43X.

Over the last five years, the industry traded as high as 32.2X, as low as 20.87X and at the median of 25X.

Price to Earnings Ratio (F12M)

Price to Earnings Ratio (F12M)



 

Financial Transaction Services Stocks to Keep a Close Eye on

We are presenting four stocks that currently carry a Zacks Rank #3 (Hold) and are well-positioned to grow in the near term.   You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visa's numerous acquisitions and partnerships paved the way for long-term growth and consistently drove revenues. Technological upgrades bode well for V. Shift in payments to the digital modes is a boon too. The acquisition of Visa Europe is a strategic fit as well. V has been striving to integrate blockchain technology with its payments platform for a while.

Presence of a trusted payment facilitator like Visa, which has more than 25 digital currency wallets linked to its systems, further propels the usage of crypto and digital currencies.

A strong balance sheet enables investment in business.

The Zacks Consensus Estimate for 2022 EPS growth rate is pegged at 18.78%. Visa beat on earnings in each of the last four quarters, the average being 9.81%. In the past year, Visa’s shares have lost 0.5%.

Price and Consenus: V

 

American Express Company, a globally integrated payments player with headquarters in New York, will continue to benefit from a number of tailwinds. AXP continues to launch innovative card offerings and upgrade the existing ones to cater to the evolving needs of its card members. Additionally, AXP takes a slew of initiatives focused on technology advancements, introduction of secure digital solutions and assistance in businesses to regulate payments. Strong cash flows are a tailwind.

Earnings of AXP beat estimates in all the last four quarters, the average being 35.38%. Shares of AXP have gained 38.6% in a year’s time.

Price and Consenus: AXP

Headquartered in Brookfield, WI, Fiserv enjoys a dominant position in the financial and payments solutions business on the back of a broad and diverse customer base, and continued technology upgrades. FISV’s diversified product portfolio helps attract a steady flow of customers. Acquisitions help expand its product portfolio, enhance offerings, boost its market share and extend its customer base.

FISV’s bottom line beat estimates in each of the last four quarters, the average being 3.15%. Shares of FISV have lost 7.3% in a year’s time.

Price and Consenus: FISV

 

Global Payments provides payments technology and software solutions to customers, globally. It also enables financial institutions and other financial service providers to manage their card portfolios, reduce technical complexity and overhead, and offer a seamless experience for cardholders on a single platform.

Investments for future growth, a number of acquisitions and robust cash flows bode well for the long term.

Earnings of GPN beat estimates in each of the last four quarters, the average being 3.58%. Shares of GPN have lost 34.8% in a year’s time.

Price and Consenus: GPN