The players in the Financial Transaction Services industry have performed decently so far this year driven by improvement in U.S. economy, low unemployment, reduced inflation, and healthy consumer confidence that resulted in increased business volumes.
The industry is also witnessing a shift from cash payments to online transactions, thanks to increased proliferation of information technology. Other forms of payments via plastic cards — credit, debit, charge and other cards — have also rapidly overtaken cash payments. Ease of carrying, safety against theft, payment flexibility, attractive rewards and a number of other features of plastic cards continue to boost transaction volume growth.
Changing Industry Trends
The economic growth in the United States has resulted in higher disposable income, eventually leading to greater customer spending. Plastic is now preferred over paper and borrowings are chosen over savings. This has significantly propelled the companies’ transaction sales volume. Continuing the trend, the last reported quarter also saw solid revenue growth.
Alternative payment modes such as e-wallets, mobile and digital currencies are gaining fast acceptance among customers. Cutting-edge technology that provides greater transaction security, flexibility, accessibility, touch-points and speed, all at a lower cost, has made digital transactions more attractive. Inspired by this, players in this space are making huge investments to support the development of new and emerging technologies in order to drive consumer spending.
Inorganic growth has been a major attribute of the industry. The players have been consolidating through mergers and acquisitions, and indulging in strategic alliances and partnerships in order to expand their operations. Recent acquisitions of NuData Security by Mastercard Inc (MA - Free Report) and Heartland Payments by Global Payments, Inc. (GPN - Free Report) , investment by Visa Inc (V - Free Report) in Swedish company Klarna and many more such deals indicate rise in consolidation activity in the space, which is expected to aid top-line growth.
However, inorganic expansion has resulted in vast international operations for the Financial Transaction Services players, exposing them to foreign exchange volatility.
One major threat faced by the industry is growing incidents of cyber-attacks and data leakage. Organizations are regularly updating their software and fraud detection systems in order to address this issue. They are also educating their consumers on basic security features.
Moreover, the companies have been suffering from a persistent rise in operating costs led by higher marketing expenses by players in order to attract more customers amid stiff rivalry. Another major expense is massive investments in digitization that would hurt margins before reaping benefits in the long term.
Industry Rank and Price Performance
The industry is thriving and its superior performance is evident from its rally of 32% in a year compared with 17.6% gain registered by the S&P 500. Therefore, investing in stocks in this industry is expected to generate decent returns over time.
Stocks to Consider
We zeroed in on three stocks from the industry that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have also seen upward estimate revisions in the last 60 days. Moreover, these stocks have maintained their stellar performance in a year’s time.
Green Dot Corporation (GDOT - Free Report) is an issuer of prepaid MasterCard and Visa cards in the United States. The Zacks Consensus Estimate for its 2017 earnings has being revised 3.4% upward while the same for 2018 increased 4.2% over the last 60 days. The company’s shares have rallied 140.1%, outperforming the both the industry and the S&P 500. The stock carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Visa is a Foster City-based multinational financial services company in the United States. The Zacks Consensus Estimate for its 2017 earnings has being revised 1.5% upward, while the same for 2018 has also increased 1.5% over the last 60 days. The company’s shares have rallied 40.5%, outperforming the both the industry and the S&P 500. The stock also carries a Zacks Rank #2.
Total System Services, Inc (TSS - Free Report) is a credit card processor, merchant acquirer and bank credit card issuer in the United States. The Zacks Consensus Estimate for its 2017 earnings has being revised 1.8% upward while the same for 2018 has increased 1.4% over the last 60 days. The company’s shares have rallied 56.4%, outperforming the both the industry and the S&P 500. The stock carries a Zacks Rank #2.
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