- Visa and MasterCard both play a vital role in the payments ecosystem and get paid handsomely to do so while bearing little risk.
- They are both wonderful businesses that benefit from a durable competitive advantage in the form of embedded ecosystem integration and universal acceptance coupled with strong consumer brand recognition.
- They both also benefit from a secular shift to card-based/digital/mobile payments, strong economics, high operating leverage and a natural index to inflation.
- There are risks/considerations to both businesses that include pricing power degradation, customer concentration, competition from China UnionPay, new digital payment technologies, potential disintermediation and also lawsuits.
- MasterCard trades at a ~23% discount to fair value at current prices near ~$71 and thus provides a bit more upside than Visa .