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4 Stocks to Bet on in a Thriving Payments Industry

Zacks

Cash is king. But when it comes to the payments’ ecosystem, cash is taking a back seat, given the twists in in the way money moves around the world.

Payments via plastic cards — credit, debit, charge and other cards have rapidly overtaken cash payments.

Ease of carrying, safety against theft, payment flexibility, attractive rewards and a number of other features make plastic cards highly coveted. This is evident from the number of cards in circulation and the rapid growth in the amount transacted via these in last five years. Also, growing penchant among consumers for online shopping is giving a boost to the use of plastic.

The dynamic payments’ space is transforming from plastic to electronic methods, thanks to emerging technologies. Widespread use of technology has filtered down to the financial services industry and has redefined the payments’ method from analogue to digital. Internet is now a way of life and electronic payment is preferred for money transfer.

Alternative payment modes such as e-wallets, mobile and digital currencies have evolved and are gaining fast acceptance. Digital transactions are more attractive owing to cutting edge technology that provides greater transaction security, flexibility, accessibility, touchpoints, and speed, all at a lower cost. As a result, companies in this space are making huge investments to support the development of new and emerging technologies.

Companies such as Visa, MasterCard, American Express and PayPal are constantly investing in upgrading technology to provide state-of-the-art services in an intensely competitive environment.

Industry insiders also believe new markets will continue to be developed in areas that have been previously dominated by paper-based transactions. Continued development of new services and the emergence of new vertical markets will help in the growth of the payments’ industry.

Also, the industry continues to grow worldwide and as a result, a number of large payment technology companies have expanded their operations globally by pursuing acquisitions and creating alliances and joint ventures.

However, one major impediment to the growth of digital payments is the growing threat of cyber-attacks and data leakage. To address the hitch that these might lead to among consumers, organizations are regularly updating their software and fraud detection systems. At the same time, they educating their consumers on basic security features.

Going forward, the up-and-coming tech-savvy generations, will fuel demand for innovative, technology-driven and easily integrated transaction methods. There is no deterrent to this thriving industry, which has returned 24.5% in a year, handily outperforming the S&P 500’s gain of 16%. Although past performance does not guarantee future results, we are quite bullish about the sector’s strong performance to continue in the coming quarters. Therefore investing in stocks of companies in this space would generate smart returns over time.



Stocks to Pick


We have chosen some stocks based on their favorable Zacks Rank, Style Score, estimate revision and strong earnings trend. Back-tested results show that stocks with a favorable Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), handily outperform other stocks.

Green Dot Corp. GDOT with a Zacks Rank #1 is a technology-centric, pro-consumer bank holding company. It is the largest provider of prepaid debit card products and prepaid card reloading services in the United States, as well as a leader in mobile banking with its GoBank mobile bank account offering. You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock has a Momentum Score of B. It beat earnings estimates in each of the last four quarters, with an average positive earnings surprise of 26.3%.

Total System Services Inc. TSS, with a Zacks Rank #2, provides global commerce solutions. The company facilitates payment exchange between buyers and sellers.

The stock has a Growth Score of B. It beat earnings estimates in three of the last four quarters, with an average positive earnings surprise of 3.5%.

Once a pure play physical money remittance company, Zacks Ranked #2 Western Union Co. WU is aggressively developing is electronic platform to expand its reach in the changing payments’ space.

The stock has a Value Score of B and beat earnings estimates in two of the last four quarters, with an average positive earnings surprise of 4%.

Vantiv, Inc. VNTV, carrying a Zacks Rank #2, is an integrated payment processor engaged in providing advanced technology solutions for businesses and financial institutions.

The stock has a Growth Score of B and beat earnings estimates in each of the last four quarters, with an average positive earnings 3.6%.

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