Visa, MasterCard See Gold in Prepaid
06/09/08 - 06:59 AM EDT
Laurie Kulikowski
Revenue and profit at both companies have been in the double digits and are expected to stay there over the next few years. The companies also do not extend credit to consumers, instead issuing their cards through bank partners and collecting a fee on each transaction. As U.S. consumers struggle to pay their bills, loan delinquencies and defaults have taken a bite out of earnings at other card-based companies such as American Express (AXP Quote - Cramer on AXP - Stock Picks) and Discover Financial Services (DFS Quote - Cramer on DFS - Stock Picks), which do hold consumer debt.
Prepaid cards are often thought of as simply travel and gift cards, which include a set amount and expire once the amount is fully used. But their potential extends far beyond that, the companies say. Both Visa and MasterCard are tapping into traditionally cash- and check-based markets like employer payroll systems, federal and state government disbursements -- such as child care benefits and unemployment funds -- health care services and rebates. "We think prepaid products are uniquely good for those segments and we believe we are uniquely well-positioned to penetrate those segments because we start with such a strong leadership position in debit and debit processing," Buse says. Like charge cards and debit cards, Visa and MasterCard receive a fee per transaction for every prepaid transaction.
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