The Financial Transaction Services industry is expected to have benefited from the accelerated adoption of digital means, improved consumer spending and growing cross-border volumes in the December quarter of 2022. However, escalating expenses stemming from technology and platform investments are likely to have acted as a drag on the margins of the industry players. Some of the financial transaction services companies like Visa Inc. (V Quick QuoteV - Free Report) , Mastercard Incorporated (MA Quick QuoteMA - Free Report) and Bread Financial Holdings, Inc. (BFH Quick QuoteBFH - Free Report) are set to report their quarterly earnings on Jan 26.

The financial transaction services space is housed within the broader Business Services sector (one of the 16 broad Zacks sectors within the Zacks Industry classification). The latest Earnings Preview indicates that the total earnings of business services companies in the December quarter are projected to decline 1.5% year over year, while revenues of these companies are expected to jump 3.6%.

Factors at Play

The top line of financial transaction services industry participants is likely to have benefited from growing transaction volumes, resulting from improved consumer spending in the December quarter. Despite continued inflationary headwinds, consumer spending might have witnessed an uptick in the to-be-reported quarter, thanks to strong wage gains (attributable to a tight labor market) and increased personal savings made during the COVID-19 pandemic.

One of the long-lasting trends resulting from the pandemic – digitization – is expected to have boosted quarterly performances of financial transaction services’ stocks in the December quarter. To harness the trend of growing inclination toward digital means, numerous efforts in the form of partnerships and significant investments pursued by the companies in discussion are likely to have contributed to their performance in the to-be-reported quarter.

The abovementioned efforts have equipped the industry players to come up with upgraded debit or credit card offerings as well as an enhanced contactless payment solutions suite. Increased utilization of these advanced offerings and solutions while pursuing any transaction is expected to have contributed to the revenue growth of financial transaction services stocks.

The easing of border restrictions and gradual gaining of confidence in traveling are expected to have led to rebounding cross-border travel. These, in turn, might have aided cross-border volumes of companies in the financial transaction services space that engage in global money transfers during the December quarter.

In an attempt to come up with enhanced digital offerings, the companies in discussion frequently resort to substantial investments for pursuing technology upgrades. An escalating expense level arising from continuous technology investments is likely to have dampened their margins in the to-be-reported quarter.

Let’s find out how the following financial transaction services stocks are placed before their December quarter earnings on Jan 26.

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Visa: This leader in digital payments is expected to have been aided by increased travel and entertainment-related spending in the to-be-reported quarter. Increased utilization of its debit or credit cards resulting from higher consumer spending is likely to have boosted the transaction processing fees of Visa. (Read more: Can Visa's Q1 Earnings Beat Estimates on Higher Volumes?)

The Zacks Consensus Estimate for V’s first-quarter fiscal 2023 earnings per share is pegged at $2.00, which indicates an improvement of 10.5% from the prior-year quarter’s reported figure. The consensus estimate for revenues stands at $7.7 billion, suggesting 8.8% growth year over year.

Visa has an Earnings ESP of +0.77% and a Zacks Rank #3.

V’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 8.28%. The same is depicted in the chart below:

MA has an Earnings ESP of +0.36% and a Zacks Rank #3.

Mastercard’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 11.81%. The same is depicted in the chart below:

Bread Financial: Its fourth-quarter revenues are likely to have been aided by higher average loan balances and improved loan yields. Credit sales of Bread Financial are expected to have witnessed an uptick on the back of existing partners, as well as new product and brand partner additions. Increased costs related to technology investments might have dampened BFH’s performance in the to-be-reported quarter.

The Zacks Consensus Estimate for BFH's fourth-quarter 2022 earnings is pegged at a loss of $3.67 per share. The company reported earnings of $1.21 per share in the prior-year quarter. The consensus mark for revenues stands at $981.7 million, which suggests 14.8% growth from the prior-year quarter’s reported number.

BFH has an Earnings ESP of +10.91% and a Zacks Rank 3.

Bread Financial surpassed estimates in one of the trailing four quarters, met the same once and missed the same twice on the remaining two occasions, the average surprise being 15.53%. This is depicted in the chart below:

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