MasterCard is Playing the Right Card in Light of Reduced U.S Card Spending
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
U.S credit card usage has dipped considerably, despite increased consumer spending in July. Although there are many contributory factors to this reduced card usage, the primary reason revolves around the emergence of alternative mobile payment systems. In light of consumers’ changing tastes, different credit card heavyweights have drawn new strategies to recapture the market.
Each player is trying to work a new angle and overhaul operations in the potent U.S market, as well as the global market. Visa (NYSE: V), for instance, is taking a slant toward conservativeness, opting for organic growth and secure returns. American Express (NYSE: AXP), on the other hand, is becoming more of a banker, offering services such as direct deposits and saving accounts. MasterCard (NYSE: MA) and Discovery Financial Services (NYSE: DFS) are, however, embracing the trending mobile payment system. The latter is currently linked to PayPal, while MasterCard inked a deal with T-Mobile a few months ago.
Amid these changing strategies, one question looms large: which credit card heavyweight is playing the right card?
From my reasoning, I believe that MasterCard has taken the safest and most rewarding option. To enhance understanding, it would be appropriate to compare MasterCard with its competitors and establish why the New York-based credit card titan towers above others.
Banking is a tough nut to crack
Focusing on American Express, I have to say that its idea to embrace banking is laudable. Banking has recovered considerably. As detailed in an interview this week, celebrated investor Warren Buffet believes that the sector is making a comeback. He even purchased more shares in Wells Fargo (NYSE: WFC), signaling his confidence in the sector.
Offering a quasi-banking service package gives American Express good positioning in the online e-commerce environment. Nevertheless, there are some huge bottlenecks in this sector.
Firstly, consumers in the banking sector are driven by loyalty. In fact, customer migration in the banking sector is very minimal. American Express will therefore find a hard time filtering through the market. Likewise, banking divides its attention and provides a leeway for its competitors to make significant gains into its credit card market.
Appetite for conservative stocks continues to thin
Visa, on the other hand, is moving south. Appetite for conservative stocks continues to thin in the current market. Even the most conservative of investors nowadays prefer the rush of making colossal amounts of money and moving on into the next investment vehicle.
Similarly, Visa’s approach limits it from fully embracing new trends in the industry. In its attempts to remain attractive to consumers, Visa may end up being sidelined by the market’s shift to mobile payment. It would be better off if it overlooked the risks and handled the shift to mobile payments in a more candid fashion.
PayPal is good, but for how long?
I have no argument against PayPal at the moment; however, I am not certain about its long term prospects. As it continues to delve deeper and deeper into the financial market, it exposes itself to more stringent regulatory practices. Considering that it has no prudential regulatory measurements, no FDIC insurance of banks, and no formal partnerships with banks, it poses a very huge risk. Discovery’s deal with PayPal may rake in handsome figures in the short run, but it’s not a certain play for the long haul.
MasterCard- the diamond in the rough
Based on MasterCard’s strategy at the moment, I believe that it is the best play. It has taken a head on approach to the shift to mobile payment systems by inking a deal with bigwig U.K mobile telecoms operator T-Mobile.
This deal not only exposes MasterCard to T-Mobile’s 93 million European mobile subscribers, but it also allows MasterCard to hop on to a trending practice in the U.K and the global market – mobile payments. Unlike Discovery’s deal with PayPal, MasterCard’s deal with T-Mobile avails more long term prospects. Similarly, it places MasterCard in a highly potent market and greatly increases its chances of stretching its top line.
In conclusion, I believe that MasterCard is playing the right card. Its strategy is more likely to recapture the market and make up for slow revenue that was caused by the shift to mobile payments. I believe that it is a buy.
muhammadbazil has no positions in the stocks mentioned above. The Motley Fool owns shares of MasterCard and Wells Fargo & Company. Motley Fool newsletter services recommend American Express Company, Visa, and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.