Visa Reaches $126 With Focus On Small Businesses

When you think of the U.S. economy, it is the big companies like Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) that come to your mind. But, in reality, its the small enterprises that account for more than 50% of all employees in the U.S. and 99% of all independent enterprises have fewer than 500 people. ^[1] Of these, about 40 million Americans are employed by companies with less than 100 workers, representing a huge market. Visa (NYSE:V) has launched a new initiative, an online platform named the Visa Payment Controls to capitalize on this potential market. ^[2]

The platform is designed to help small businesses manage transactions made on employees’ business cards based on location, spending limits and various categories like transaction type, channel and merchant category restrictions. As an example, a courier service could restrict a driver’s card use to purchase only fuel on a specified route, thus avoiding unwanted and unnecessary spending. This service will help small business manage their cash flows, offering higher efficiency while reporting.

See our full analysis of Visa here

Growth Hindered…

Small businesses, although historically a dynamic source of job creation, have seen slow growth in the last few years, as the financial crisis and the resulting recession have taken a toll on the U.S. economy. A fall in demand growth, restrictions on lending and a reduction in home equity have dampened the growth of small businesses. Home equity has been the primary source of capital for start-ups, but a 30% drop in house prices since 2008 has discouraged several potential entrepreneurs.

…But Put On The Right Track

The outlook for budding enterprises is improving as the economy slowly recovers and in part helped by new initiatives such as the Obama administration’s Jumpstart Our Business Startups Act, which allows small business easier access to funds by easing regulations and requirements for small businesses. ^[3]

We expect the small business industry to gather momentum in the next few months, with Visa now in a pole position to capitalize on their growth. The Visa Payment Controls system is a lucrative offering for small enterprises as it will make the use of outdated payment schemes like cash or checks for everyday work related expenses and detailed reimbursement receipts obsolete. This will help managers take control of employee spending, increase transparency, and provide insights into the companies’ everyday spending.

We can expect to see an increase in Visa’s total transactions processed with increased customer loyalty as more employers sign up for the new offering. Visa already has a high merchant acceptance rate throughout the world, covering over 200 countries, which will further supplement its growth through the Trefis forecast period.

Our price estimate for Visa’s stock is $125, in line with the current market price, and you can gauge the effect on our price estimate by modifying the chart above.

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1. Small Business in the United States, U.S. Department of State [↩]
2. New Visa Service Streamlines Small Business Expense Management, Press Release, 27^th June, 2012 [↩]
3. JOBS Act To Jumpstart The Job Market, Forbes, 4^th May, 2012 [↩]