Here Are The Key Drivers Of Visa’s Growth

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In the highly competitive payments solutions business, the ability to attract and retain customers is key, and Visa‘s (NYSE:V) revenue growth will depend on new client acquisitions and the renewal of existing partnerships. We expect Visa to be able to expand operations in China by the second half of 2016, and establishing its footprint in this $7 trillion market should be another key driver of growth. As mobile commerce grows at an impressive pace, innovation in this space geared towards customer convenience and security will be key for Visa to increase its market share and boost revenues.

New Partnerships, Continuing Existing Relationships

Visa has partnership agreements in place for five of its top six clients until 2020, which should allow the company to maintain healthy volumes. The company acquired two new large clients in 2015 – Costco and USAA (USAA ended a long term partnership with MasterCard) which together brought in more than $70 billion in payments volume in 2014. In a fairly standardized payment solutions market, acquiring and maintaining clients and partnerships is the key differentiator, and these relationships are definitely a boost for Visa’s business. Clients choose payment solution partners based on economics and the flexibility of structuring benefits, and it appears that Visa has gotten its strategy right, which should propel future growth.

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Growth Prospects In China

China UnionPay currently holds a virtual monopoly on the processing and clearing of credit and debit card payments made in yuan. China has now opened its doors to foreign credit card players, but given the licensing requirements, Visa will only be able to expand its operations in the second half of 2016. The Chinese market presents a huge opportunity, with total card transactions valued at nearly $7 trillion, according to China’s central bank. Even if Visa manages to capture less than 1% of market share in China, this could push its revenues up by 1.5%-2% over our current 2017 estimates. China presents a huge revenue opportunity to Visa in the future.

Increasing Share Of Mobile Commerce Market

According to Gartner, worldwide mobile payment transaction volumes stood at $235 billion in 2013 and is expected to grow at a CAGR of 32% to reach $717 billion in 2017, as an increasing number of phones incorporate near-field communication (NFC) chips to facilitate mobile payments. According to the Federal Reserve Board, 22% of people with mobile phones in the U.S. made a mobile payment in 2014. This figure was 17% in 2013. To capitalize on this shift towards mobile payments, Visa launched “Visa Checkout,” which enables customers to make payments online via any device and collaborated with Apple on its “Apple Pay” service. It also launched “tokenization” technology that replaces sensitive account information with a series of random numbers during payment authorization. Although competition is intensifying in the mobile payment market, we believe mobile payments present a huge growth opportunity, and Visa’s innovations in this space will be key to driving its future revenues.

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