Visa: Middle Man for the Middle Class
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Maybe I’m biased, but retail is one of my favorite economic sectors. Having moved to Vietnam in 2007 if there is one thing I’ve noticed it is the almost surreal rate of change of the middle class here, even in the face of a two year slowdown brought on by the Great Recession in the West whose effects were felt over here quite strongly. That said, though, the growth in the Asia/Pacific region is happening at a rate that the West can only dream of on the best of days anymore.
And Visa (NYSE: V) is there to be the middle man in billions of transactions for a middle class that is set to explode from approximately 500 million now to more than 3 billion by 2030.
Freedom to Travel
As the ASEAN nations move towards the Asian Economic Community (AEC) in 2015, restrictions on international travel will drop significantly. Passport and visa liberalization and reciprocity will allow the world’s most populated region to freely move about in the same way that Europeans travel through the E.U. Visa’s own research has found that the traditional Asian preference for cash is waning in the face of security and convenience provided by credit and debit cards.
ASEAN accounts for approximately 4.7% of Global GDP. When you add in China, Japan and Korea, the ASEAN+3 region, that number rises to 22.7% of global GDP. By 2050 all forecasts are for those countries to account for more than 50% of world GDP. As the middle classes in these countries emerge, which we are beginning to see in China and Thailand, the rates of growth in consumer spending climbs exponentially.
The region accounts for around one quarter of all air travel now but with travel becoming not only easier but much more affordable, the use of credit and debit cards will rise growing faster than the economies do, i.e. a higher percentage of a growing middle class will use their Visa card to handle their travel purchases.
The Banking Conundrum
The best estimates hold that around 3/4ths of the world population does not have a bank account but many of them have a mobile phone. One of Visa’s challenges will be to blunt the ability of mobile payment systems like MobilityOne, which operates in Malaysia, Cambodia and Indonesia, to handle people’s day-to-day transactions. MobilityOne is extremely small now, with revenues of just $23.0 million through the first half of 2011 and 44% growth over the 2nd half of 2010. But, systems like it are a path to convenience for the millions of rural people around the Pacific Rim who do not have a bank account.
Businesses like that thrive on a monthly automatic topping-up model, which in Malaysia is a $200 million per month business for pay-as-you-go mobile phone use. In the U.S. PayPal, the highly successful subsidiary of EBay (NASDAQ: EBAY) is in the process of rolling out its PayPal Wallet; testing it at a number of major retailers in the U.S. like Home Depot. They opened up an operations center in Kuala Lampur, Malaysia last year and expect to do $3.5 billion in mobile transactions, or 12% of their total business, this year, a 500% increase over 2010.
Many people in this part of the world experience the internet for the first time through their mobile device be it a phone or tablet. But, at this point, most of them are on a pay-as-you-go plan with a cheap phone. Therefore, they are not Visa and Paypal customers now or in the near future. PayPal Here, the newly introduced card reader for your smartphone, will be an interesting wrinkle in this market as PayPal is trying to chip away at Visa and MasterCard’s dominance in point-of-sale transactions.
The Gadget Roll Up
One of my big themes is simplicity. One could always tell the I.T. guy at the restaurant by the Batman-like utility belt of things he carries: fanny pack, phone, beeper, etc. I like my tools to be both simple but powerful. This is why the iPhone and Google’s website are so successful. They emphasize a simple but powerful interface by which to get your work done. As time goes on, the phone or mobile device will become the interface for our lives. What started as a phone has become, for many, all they need to access the world.
To ignore the desire of people to unclutter their lives is to ignore likely the most powerful trend in the retail space right now. The more our mobile devices can do, the more they can free us from having to lug around a multitude of devices and things and the more we will demand them to do.
So, will we really need such things as little plastic cards with separate accounts to manage and interest to be paid? There are many reasons why Visa is a valuable service that go beyond the convenience, e.g. fraud protection. No doubt I’m very bullish on Visa’s prospects but I have to wonder if “What’s in your wallet?” may have to be replaced by “What’s your phone number?”
Peter Pham has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend eBay and Visa. 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.