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Payments Industry to Thrive in Experience-Driven Travel Era

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Payments processing companies continue to capitalize on the growing cross-border business in the post-pandemic era. Cross-border payments represent a lucrative sector due to its high-margin nature, with companies often able to levy additional foreign exchange fees. Steady growth in travel and entertainment-related spending is also bolstering the global tourism and hospitality industries, pivotal in the economic resurgence of numerous nations. Extensive research conducted by leading payments companies shows that travel growth is expected to continue on its course.

Last November, Visa Inc. (V - Free Report) unveiled findings from its 2023 Visa Global Travel Intentions Study, revealing a sustained upsurge in travel activity following the pandemic despite inflationary pressures. The phenomenon of "revenge travel" emerged prominently as individuals sought to compensate for missed vacations and experiences, driving up cross-border payments for financial services providers.

In its 2024 Global Travel Trends Report, American Express Company (AXP - Free Report) , an integrated payments firm, recently disclosed that 84% of survey respondents intend to maintain or increase their travel expenditure in 2024 compared to the previous year. Notably, 77% of participants prioritize the quality of their travel experience over the cost of the trip.

Travelers are increasingly prioritizing unique experiences, such as attending sporting events or embarking on adventurous expeditions. Additionally, there's a growing trend toward solo travel and spontaneous trips, reflecting a desire for personalized and flexible travel experiences. To achieve a better travel experience with ease of planning and personalized itinerary, people intend to use a travel agent or trusted advisor to help them book their trips.

The increasing demand for premium travel experiences is driving companies in the Financial Transaction Services industry to introduce innovative products tailored to meet these preferences. Firms boasting extensive global networks are poised to leverage this trend more effectively, capitalizing on the growing market for high-quality travel services.

Now let’s talk latest numbers.

On a constant-dollar basis, in the December 2023 quarter, the cross-border volume of Visa climbed 16% year over year. International transaction revenues amounted to more than $3 billion, which improved 8% year over year on the back of the growing volumes.

Similarly, American Express’ Global Merchant and Network Services segment’s total revenues (net of interest expense) jumped 10% year over year to $1.94 billion in the fourth quarter of 2023. This Zacks Rank #2 (Buy) company’s U.S. Consumer Services segment, which extends travel and lifestyle services among several other products to consumers, witnessed 13% year-over-year growth in total revenues (net of interest expense) to $7.4 billion, thanks to higher Card Member spending. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another transaction processing and payments services giant, Mastercard Incorporated (MA - Free Report) , witnessed cross-border volumes advancing 18% year over year in the fourth quarter on a local currency basis. MA’s cross-border assessments (the second highest contributor in Payments Network Gross Revenues) jumped 22.7% in fourth-quarter 2023 to $2.2 billion.

In conclusion, it can be said that cross-border payments, fueled by increased travel activity, represent a lucrative opportunity for payments firms. The travel industry's resurgence will continue driving significant growth in transaction volumes and revenues for these companies. So far, the high inflation in most of the economies failed to disrupt the travel growth trend. Many governments opting for rate hikes to tame inflation has worked to some extent, providing a respite to consumers. This is also expected to influence travel and entertainment related spending. However, growing geopolitical uncertainties in different regions may impact travel decisions, requiring payment firms to adapt accordingly.

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