Credit Card Companies as Investments: Do you accept MasterCard, Visa, or American Express?
When you buy an investment - a stock, a bond, a mutual fund - you want to know that your company will be around for many years to come. Do you have a MasterCard credit card? So look in your wallet, or your pocketbook, for a long-term investment in MasterCard, Inc (ticker symbol: MA). Have you heard of MasterCard Rewards? A number of companies involved in credit card transactions should benefit from long-term worldwide growth and likely deserve a place in your investment portfolio. Let's take a look specifically at Mastercard.
MasterCard Incorporated's global network processes over twenty-three (23) billion transactions a year. Founded in 1966 as the Interbank Card Association (ICA), the company was renamed MasterCard in 1979. The company held an initial public offering (IPO) in 2006 of 61.5 million shares. Goldman Sachs, Citigroup, HSBC, and JP Morgan were all involved in the IPO. Its services are provided to approximately 22,000 financial institutions in support of credit, debit, and prepaid electronic payment programs.
Who is Involved in the Transaction?
How does a simple card transaction work? A transaction with a credit or debit card from MasterCard involves the merchant (vendor or store), the individual mastercard cardholder (client or customer), the issuer (cardholder's bank), and the merchant's bank (the acquirer). The two banks involved in the transaction (the issuer and acquirer) are MasterCard's customers. The three steps in this process are: Authorization (which is used for authentication), Clearing (usually within a day, the sales data transfers between parties and MasterCard for accuracy), and finally Settlement (usually within two days, MasterCard calculates net settlement positions for issuers and acquirers). The company generates its annual revenues by charging its customers fees for providing the transaction processing and MasterCard merchant services.
MasterCard, along with American Express (ticker:AXP) and Visa (ticker:V), have expanded with incredible growth in recent decades. Can this growth continue into the 21st century as support for a solid investment idea? For quite some time, consumers have been moving towards more cashless transactions. Add to this trend a rising middle-class in developing nations such as India and China, and crossover emerging markets like Russia, Brazil, Indonesia, Argentina, Turkey, Egypt, and others. Even as the technology likely moves to instant transactions by smart phone (like iPhone, Android, or Samsung) or another contactless key system (like Exxon Mobil's speedpass technology), it is very likely that MasterCard, Visa, and Amex will still be involved in the purchase.
It's also interesting to note that investing guru and "Oracle of Omaha" Warren Buffett and his Berkshire Hathaway Inc. (BRK.A, BRK.B) disclosed a new small position in MasterCard in the spring of 2011.
Unfortunately it is not possible to purchase MasterCard's stock directly from the company, or their transfer agent, through a direct stock purchase plan (DSPP) or dividend reinvestment plan (DRIP). If this DSPP/DRIP program were in place, it would be a great way to dollar-cost-average your exposure to a company that is still subject to shifting financial regulation in the USA. MasterCard (MA) is a candidate for any long-term account (especially tax-deferred), and its modest dividend, should be reinvested until you need to derive income from the account. If you have a MasterCard credit card or debit card, then you may already have found a great long-term investment idea.