With our usual heads-down focus on payments products, technologies, and marketing, we sometimes forget that payments companies also have investors. And the investment community is definitely waking up to the turmoil in the payments industry. A recent article by advisor Morningstar highlights this reality. Interestingly, one of the long term disruptive threats they highlight is mobile:
The ability to store an indefinite number of payment options on one device would enable spending volumes to move from one payment brand to another more efficiently, essentially lowering the stickiness of payment volumes and eroding cardholder loyalty to a given brand. If it’s easy to change payment brands, cardholders will choose the card that pays them the most, which would force issuers to offer more rewards and put pressure on the networks to support them.
While networks and issuers probably would be able to have their brands loaded on the electronic wallet, cardholders would be exposed to the brand of the electronic wallet and phone, which could dilute the brand of the issuers and networks in the payment space. In this case, we think issuers would reconsider the payments they make to Visa and MasterCard for the right to use their brand on their cards.
Also highlighted are the competitive threats to payment networks, including industry consolidation and increased regulation:
We think the banking sector is in the midst of a major consolidation process that probably will accelerate from its current levels in the coming years. This will lead to higher concentration in the card space, which doesn’t bode well for the networks–especially Visa and MasterCard. We expect this trend to result in higher incentives and rebates and lower processing fees.
Ultimately, they take a softer tone with regard to industry incumbents (and perhaps the reality of the law of large numbers):
Although the competitive headwinds Visa, MasterCard, and Amex face in the payments are intensifying, it doesn’t mean the stocks are bad buys at any price. The largest networks still benefit from very strong growth in electronic payments–a secular trend that is likely to continue during the next five years.
Click here for more: http://news.morningstar.com/articlenet/article.aspx?id=393365
