What’s the best part about digital payment stocks? These companies earn a percentage of every transaction they process upfront before the merchant receives the funds. It’s kind of like an upfront tax on the transaction. This type of revenue is stable and predictable as long as consumers and merchants continue to use the payment processor.
The following 5 companies have a strong presence in the digital payment processing industry along with a recognizable brand people trust. In the long term, I really love these stocks to profit immensely from the inevitable move towards a digital transaction economy.
Paypal is my top overall favorite digital payment stock because I personally use Paypal everyday and could not imagine my life without it. Paypal is a trusted payment processor for millions of businesses and they recently invested $500 million into Uber to offer Paypal as a method of payment for Uber customers.
The company managed 268 million active accounts for FY2018 (up 17% from FY2017) and payment transactions grew to $9.9 billion (up 27% from FY2017).
The company spun off from eBay back in 2015 and the stock has been on a tear recently. The best part is there is plenty of room to run in the long term for a trusted brand like Paypal.
Related: How to Buy Paypal Stock
Mastercard is another major player in the digital payment boom who actually partners with Paypal to offer a Paypal Mastercard Business Debit Card (One that I personally use myself).
Believe it or not, most people in the world don’t have a credit card or access to a bank account. Smartphones and digital technology are making credit cards & debit cards more accessible to the rest of the world, thus putting Mastercard in a wonderful position to generate profits.
The company has issued a whopping 2.5 billion Mastercards worldwide and net income increased 25% YOY to $1.9 billion in Q1 2019. $1.80 EPS also grew28% YOY in Q1 2019.
I, along with millions of others, use Mastercard on a regular basis so this is another stock I personally support and understand very well.
Read More: Mastercard Investor Relations
There’s Mastercard and then there’s Visa. Depending on which company you prefer, Visa is another iconic brand in the digital payment industry. The company posted a $3 billion net income (13% YOY change) in Q1 2019 along with an impressive $1.30 EPS (21% YOY change).
Another healthy sign is Visa’s share repurchase program, signaling their long term goal to return value to shareholders. Dividend investors should also take a look at Visa’s 0.67% yield, which adds a bit of passive income and dividend reinvestment to your position.
Square is a company focused on making it easier for small businesses and company to receive digital payments for goods sold. Total revenue increased to $933 million (53% YOY increase) in Q4 2018 however the company suffered a $28 million net income loss due to rising operating costs and interest payment on notes.
With only a $30 billion market cap, Square is a much smaller company than bigger players like Paypal. In the long term, Square needs to increase the active members on their Cash App and market the recently launched SquareCard (In partnership with Mastercard) to increase revenue.
This is a good long term play on digital payments for small to medium sized busineses.
Last but not least, Apple’s Apple Pay product is a natural extension to their core audience who loves innovative tech products. While iPhone sales are increasing, Apple posted record revenue of $11.5 billion in Q2 2019 for its service product line.
More companies are sure to adopt Apple pay and give Apple consumers a simple and easy way to purchase stuff using the upcoming Apple Card. Apple Card is set to launch in the summer of 2019 and looks like a complete game changer in the digital payment & credit card industry. Be sure to look out for that.
Disclosure: I own shares of Visa, Mastercard and Paypal
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.