Analyst: Prepaid cards to boost Visa, MasterCard profit
By APTuesday, March 2, 2010
Prepaid cards may boost Visa, MasterCard profit
DES MOINES, Iowa — An analyst raised his profit estimates for Visa Inc. and MasterCard Inc. for 2010 and 2011 on Tuesday, saying the increasing use of prepaid cards will boost profitability.
William Blair & Co. analyst David Long said the two major payment processing companies are expected to see the greatest benefit from increasing consumer use of prepaid cards.
Unlike debit cards, prepaid cards do not have a credit line attached. The cards can only be used for the amount preloaded onto it. The user transfers money from a bank account onto the card, or by giving cash to a cashier who swipes the card through a card reader, placing the appropriate balance on it. The cards, therefore, have limited funds available to spend. The cards may be used at businesses accepting similarly branded credit and debit cards and at ATM machines.
Acquiring the prepaid cards usually do not require a credit check, so consumers who cannot get a credit card can use the prepaid cards to reserve hotel rooms, rental cars and similar purchases.
Prepaid cards are also frequently provided by parents to children because the spending is limited only to the preloaded amount.
“We believe Visa and MasterCard are the prime beneficiaries of the rapid growth in prepaid use, as prepaid growth is contributing to the increase in card use over paper forms of payment (cash and checks),” Long wrote in an investor note.
American Express, Discover, Western Union, and Capital One also will benefit from the growth to a lesser degree, he said.
Industry analysts expect the prepaid market to grow 22 percent a year over the next three years. Total dollars loaded onto prepaid cards is expected to increase to $526 billion in 2012 from $291 billion in 2009.
Long raised Visa’s fiscal 2010 earnings per share estimate by 6 cents to $3.80 and the fiscal 2011 estimate by 11 cents to $4.56.
Analysts surveyed by Thomson Reuters expect 2010 earnings of $3.78 and a 2011 profit of $4.55.
For MasterCard, he raised the 2010 estimate by 5 cents to $13.50 and the 2011 estimate by 10 cents to $15.60.
Analysts, on average, expect 2010 profit of $13.47 and a 2011 estimate of $16.08.
Visa shares fell 25 cents to $86.57 in morning trading and MasterCard fell 47 cents to $232.27.
(This version CORRECTS SUBS graf 2 to correct description of Visa and MasterCard to payment processing sted of credit card companies; ADDS detail in graf 3 cards can be reloaded with cash; Also moving on general news wires.)
