Visa vs. Mastercard, Here’s What Investors Need To Know About These Two Credit Card Giants

Quick experiment, think about how many credit cards are in your wallet. Got it yet? I am willing to bet that you have a VisaV -0.7% or MastercardMA -0.8% credit card somewhere. Both are publicly traded and are integral pieces of the credit card industry. Credit card payments in 2018 totaled $44.7 billion in the U.S. alone, according to a 2019 Feder Reserve Payment Study.

In the same year the U.S. accounted for $39.6 billion combined purchase transactions further proving America is a society that loves to spend. Investors have many avenues of investing in the financial industry, it can be quite intimidating to make a portfolio decision. Two juggernauts in the finance world have been battling each other for market shares since the dawn of electronic payments. Between them, they account for 64 percent of the global consumer financing market.

Visa stock has grown 70.2% over the past five years compared to Mastercard stock's five-year growth of 102.4%. These companies have nothing to be ashamed of while they continue to serve as solid picks for any savvy investor, but could you ever pick between the two if it came down to the matter? Time to put the question to bed on which stock is more appealing for your wallet!

Who has the most market share?

Simply put, Visa holds the larger market share regarding financial transactions. Visa and Mastercard generally earn a small percentage every time a consumer swipes their credit, debit, or prepaid card. The key metric to their profits is how many transactions they process annually. Therefore, this metric must be understood to compare the two. Nilson Report's global credit card in 2019 for brand transactions was led by Visa, handling 5 billion purchase transactions, and Mastercard fell short at 4 billion transactions.

It would be foolish not to consider the sheer difference between Mastercard credit card holders compared to Visa. According to an August 2021 article by Shift, 335 million consumers used Visa cards compared to 200 million consumers who own a Mastercard. For comparison, Discover sits at 51.4 million and American ExpressAXP -1.8% at 47.5 million. Concerning market share, Visa is holding the trophy.

Who has more growth potential?

The world is slowly moving to a cashless society, most countries around the globe are transforming in this regard. As the evolution continues, both companies are innovative enough to grow in these emerging markets. Each company knows that investors want to know this information and provide it annually on their 10-K report submitted to the SEC.

Visa facilitates money movement across more than 200 countries/territories, and Mastercard facilitates money movement across more than 210 countries. And though 200 countries/territories may not seem impressive, consider that American Express is only in 160 countries.

Being that both companies are globally known for the majority, we can call this section a tie. However, if one company had to be picked over the other, Mastercard still has more room to run. Why? With increasing rates, Visa has been dropped by Natwest, and Amazon announced last year they would not accept Visa credit cards. Presently, Visa credit cards are still accepted, but the threat is still in the air.

The financials

On paper, intelligent investors will need to know critical metrics for each company to start comparing. Keep in mind that both companies report their annual report at different times of the year, but other than that, these metrics will be comparing which company is more robust on paper.

The first metric we can analyze is the net profit margin which is the ratio of profit a company earns to the total amount of revenue that is generated. Visa's profit margin is 51.1% in 2021 compared to Mastercard's percentage standing at 46% for 2021. Another key metric is revenue percentage changes year-over-year. Mastercard's ratio stands at 23.4% growth since last year, and Visa's percentage growth has been 10.3%. Comparing the past three years for revenue growth, Mastercard financials have shown more growth. However, Visa tends to be more stable with valuations.

Innovation

Blockbuster still serves as an example of what can happen to big businesses that are not innovative in their respective industry. Blockbuster had opportunities to invest in Netflix, and the rest is history. The same can happen in any industry, and fintech continues to grow with consumers, especially with the emergence of cryptocurrency.

These two financial juggernauts both dabble in cryptocurrency. In addition, both companies have been innovative with "Buy Now Pay Later" options offered to consumers, and the BNPL trend is still being reviewed but offers a sizeable new market share. Again, both companies are also environmentally innovative. Mastercard announced earlier in the year a "Sustainability Innovation Lab" in Stockholm for the creation of climate-conscious products.

This year Visa followed suit by announcing the "Visa Eco Benefits" package. This package is designed to offer sustainability-focused benefits for account issuers. Regarding innovation, I applaud both companies for keeping up with fintech and their commitment to a cleaner environment.

Dividend strength

This section is for any of my fellow dividend lovers and investors who want to increase their dividend income. The good news is that both companies have consistently paid investors via dividends. Anyone can review their past dividend history, alongside other metrics, on Morningstar, a free investing resource.

Mastercard's dividend per share in 2021 was $1.76 compared to its $1.00 dividend per share in 2018. On the other side, Visa 2021 dividend payout totaled $1.34 compared to the 2018 dividend payout of $0.88. When we review the dividend growth, Mastercard's dividend has grown by $0.76 compared to Visa's dividend growth of $0.46. Dividend lovers should keep their eye on Mastercard for that reason.

The bottom line

Apple's brand has done a fantastic job convincing consumers that once you have one Apple product, you need all the other Apple products. I say this as I type on my Macbook with my iPhone closeby, and my now dated Apple Watch on my wrist. Apple consumers would never be seen with a Samsung product which shows how strong the brand stands. But for investing money in stocks, I tend to shy away from only buying stock from only one competitor.

Visa and Mastercard stock both beat the market over the past five years. The industry is still strong, with no signs of replacement coming soon. For a different, and more diversified approach, Q.ai takes the guesswork out of investing.