3 Payment Stocks Set To Gain From Holiday Season Sales

 | Nov 18, 2018 08:23PM ET

Payments’ companies should see an increase in card processing via their payments' network in the upcoming holiday season, which is expected to see smashing sales. According to Discover’s annual holiday shopping survey, 25% of consumers plan to spend more this holiday season than they did last year.

The increase in spending holds all the more shine for payments' companies as transactions are increasingly being made online, through mobiles and via cards (debit as well as credit). Moreover, continued rise in spending via e-commerce, which generally involves the use of new-age payment methods, bodes well for the industry.

All these imply increased use of payment networks and cards, which generate revenues and fee income for the players involved.

Strong Sales Expected in Holiday Season

Strong economic fundamentals and high consumer confidence are likely to shape up this holiday season into a record-breaking one. Industry experts believe that overall spending would cross the $1 trillion mark this season.
Of overall retail sales, the report estimates that e-commerce sales will represent about 12.3% of total retail sales this holiday season, which translates into a surge 16.6% year-over-year surge to $123.73 billion.

Adobe (NASDAQ:ADBE) Analytics reported that U.S. consumers spent $18.1 billion online in the first 12 days of November. Earlier this month, Adobe had also predicted that online sales would touch $124 billion this holiday season.

Thus the huge spending spree should increase transactions for payment companies and directly boost their topline.

Visa Inc. (NYSE:V) earnings for the Oct-Dec 2017 quarter witnessed healthy growth driven by a strong holiday season and e-commerce growth. We expect to see the same this year.

Increased Use of Credit Cards and Other Payment Modes

Per Discover Financial, the number of people expected to use credit cards to pay for most of their holiday gifts has jumped to 38% this year from 32% in 2017. Almost 24% plan to use debit cards to pay for most of their gifts, and 20% will primarily use cash.

One of the factors favoring credit cards when making holiday purchases is earning rewards. However, the speed, ease and flexibility offered by electronic payment modes cannot be overlooked either.

A distinct mobile payment trend is being witnessed among the younger generation. Per Discover Financial, the youngest generation is the most tech savvy among holiday shoppers. Almost 80% of Gen Z is most likely to use their mobile device to shop for holiday gifts compared with 73% Millennials, 62% Gen X and 41% Baby Boomers.

This clearly points to the fact that a shift to the electronic mode of payments will continue to catch up with demographic changes. Companies in this space have already sensed this and are continuously investing billions of dollars in their systems, procedures and networks.

Though the payments space is dynamic and requires the use of cutting-edge technology (involving huge expenditure) by companies to provide superior, cost effective, secured service to customers, opportunities for growth are aplenty in the industry, as cash is still a dominant mode of payment in many markets and geographies. These underpenetrated markets hold growth potential for established players with their robust payment networks.

Artificial intelligence, blockchain technology, biometric and contactless technology will further revolutionize the industry. Only players staying updated with the newest technical developments should be able to fly high.

In a year’s time, the industry has gained 20% compared with the Zacks composite S&P rise of 5.9%.