In the year since COVID-19 was declared a global pandemic by the World Health Organization, several big trends in tech have accelerated as everything from work to school to shopping shifted online.
One area in particular that has gotten a lot of attention is the fintech space, with stocks like PayPal (NASDAQ: PYPL) and Square (NYSE: SQ) surging far higher as investors flocked to “stay-at-home” stocks last year.
“Fintech is coming into the mainstream from this pandemic as there has really been demand for digital services – less in person transactions,” said JPMorgan Securities chair of global research, Joyce Chang.
But with both fintech names up more than 100% over the last year, MoffettNathanson analyst Lisa Ellis said two credit card networks look like better picks in the payments space now.
“We believe risks to the networks are many in theory, but few in practice,” Ellis wrote, adding that “the risk that Visa’s and Mastercard’s business models are disrupted remains low.”
While the top risk to card networks is that they will be eliminated from the payments ecosystem by new technologies that don’t need the infrastructure they provide, the MoffettNathanson analyst argues that substitutes for Visa’s and Mastercard’s “open-loop” networks still all have shortcomings, including lack of scale, security features, and processing capacity, or constraints in some countries around the world.
“In short, they are not better, and—once fraud cost are considered—are rarely significantly cheaper, than Visa’s and Mastercard’s networks,” Ellis added.
Still, as new payment technologies gain traction, Ellis cautions that it will be on the card networks to prove that they can keep growing in the face of mounting threats. But for now, Mastercard and Visa look to be on solid footing.