The company makes money by providing transaction information and resources among the customer, merchant and their respective banks, collecting a fee based on the number and dollar value of transactions that it processes. Visa competes with other card networks like
, which is about 35% greater than the market price.
Visa Positioned to Benefit from Mobile Payment Trend
Mobile payments is the new and rapidly growing mode of transaction that could potentially increase revenues for Visa. Instead of paying with cash, check or credit card, a consumer can use a mobile phone to pay for a wide range of goods and services. "Mobile payments are still a nascent development, but with more than 4.8 billion mobile phones worldwide, the opportunity is tremendous," according to
Visa has recently announced the commercial availability of its mobile contactless payment solution. (
) Visa has partnered with DeviceFidelity and by using its In2Pay technology, Visa issuers can load the Visa mobile payment application to microSD cards, providing account holders with the convenience and security of mobile contactless payments.
Several smartphone models such as BlackBerry Bold 9650 , the iPhone 4, and the Samsung Galaxy S are now compatible for use with this technology. As the demand for mobile payment services accelerates in global markets, Visa is positioned to benefit from this trend.
Higher Transaction Volumes Could Generate Stock Upside
Visa earns revenues by charging fees for its transaction processing service, which involves routing payment information to facilitate the authorization, clearing and settlement of transactions. These revenues depend heavily on the number of transactions that are processed by Visa.
With the rapid rise in use of debit and credit card as a preferred mode of payment over cash and check, the number of transactions processed by Visa has grown steadily by 10% in the last couple of years, except 2008 when the economic downturn caused transaction volumes to drop by almost 11%.
The number of mobile payment users worldwide increased to 73.4 million in 2009, roughly a 70% increase over 2008, and could breach 190 million by 2012. (
Gartner Forecasts Rapid Growth in Mobile Payments Users
The amount of transactions through mobile payments could reach $110 billion by 2013, at an annual growth rate of more than 100%. Due to the tremendous rise in mobile payment users, we forecast the number of transactions processed by Visa to grow to 82 million by 2017.
However, the sharp rise in mobile payment users, coupled with Visa's strong market position, could trigger a more substantial increase in Visa's transaction volumes. If Visa's volumes reach 100 million by the end of our forecast period (vs. the 82 million that we project in our base case), there could be an additional 6% upside to our price estimate, which already stands about 35% ahead of market price.
Drag the trend line in the chart above to see the impact of trends in Visa's total transactions processed on the company's stock value.
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