The Sizemore Investment Letter always considered the swipe fee controversy to be a beneficial distraction and a ripe opportunity for contrarian investment. Investors preoccupied with the fees—which, in any event, would have hit the banks issuing the cards harder than Visa and MasterCard themselves—missed the bigger picture. The fees would have capped American debit cards fees only; credit cards would not have been affected.
Furthermore, Visa’s earnings streams are increasingly less dependent on the United States—where consumer spending is tepid at best—and more dependent on fast-growing emerging markets.
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As I’ve repeated in past articles, Visa is an “Emerging Market Lite” investment. It already gets 40% of its revenues from overseas, mostly from the fast-growth markets of Asia and Latin America. Visa has a stated objective of having more than half of its revenue from overseas by 2015, and all indications are that the company will reach this goal. Should consumer spending remain depressed in the United States, it may even happen sooner.
Even under the worst-case scenario, the potential damage to Visa’s business was questionable. Had banks carried out their threats to start charging their customers for the use of debit cards, few customers would have reverted to paying cash or writing checks. The convenience of paying electronically in the internet age outweighs any nominal fee. And again, the fees would not have applied to credit cards. Many debit card users would simply have switched to low-balance credit cards.
The growth in electronic payments is a durable macro trend that is unlikely to be broken, even by forces as incompetent as the U.S. Congress and the Federal Reserve. Investors who were able to keep a level head and avoid the fear and hysteria surrounding the fee issue were able to scoop up shares of Visa and MasterCard at very attractive prices.
Still, I am glad to see the Fed revise its initial decision on swipe fees. Now that the uncertainty that was keeping a lid on share prices has been cleared, Visa and MasterCard are likely to enjoy a prolonged run. I would like to reiterate my “buy” recommendation of Visa.
Disclosure: Author is long V and Visa is a current recommendation of the Sizemore Investment Letter.