The Financial Transaction Services industry is poised to benefit from rising consumer spending and robust e-commerce expansion, supported by greater Internet access and smartphone adoption. The global shift toward digital payments, including innovations like cryptocurrency, biometric authentication and buy now, pay later (BNPL) options, diversifies revenue streams and enhances customer convenience. Growth in cross-border transactions acts as a tailwind. Lower interest rates also support strategic merger and acquisition (M&A) activities to build digital ecosystems. However, inflationary pressures could limit consumer purchasing power. Companies like Visa Inc. V, Mastercard Incorporated MA, Fiserv, Inc. FI, Fidelity National Information Services, Inc. FIS and Global Payments Inc. GPN are well-positioned to benefit from the industry's promising growth prospects.
About the Industry
The Zacks Financial Transaction Services industry is part of the Financial Technology or the FinTech space, including companies with diverse natures of businesses. The industry comprises card and payment processing and other solutions providers, ATM services and money remittance service providers as well as providers of investment solutions to financial advisors. The players in this segment operate their unique and proprietary global payments network that links issuers and acquirers around the globe to facilitate the switching of transactions, permitting account holders to use their products at millions of acceptance locations. Monetary transactions are effectuated through these networks, offering a convenient, quick and secure payment method in several currencies across the globe. The industry is benefiting from the ongoing digitization movement triggered by the pandemic.
Four Trends Shaping the Fate of the Financial Transaction Services Space
The Digital Revolution in Payments: The global move toward contactless payment solutions continues to gain momentum, with traditional cash and check transactions becoming increasingly rare. In response, industry leaders are unveiling innovative payment methods such as cryptocurrency, biometric authentication, QR codes and BNPL options. These innovations have expanded customer reach and diversified revenue channels, delivering greater convenience and value. To maintain competitiveness and market leadership, companies are making significant investments in technology. However, the widespread adoption of digital payments heightens the risk of advanced cyber threats, including data breaches and financial fraud, posing challenges for consumers and businesses alike. Consequently, firms are focusing on developing secure payment systems and investing heavily in advanced fraud prevention measures.
Sustained Consumer Spending: Rising consumer spending has boosted the utilization of products and services offered by financial transaction services providers, leading to higher transaction volumes and increased revenues. According to Deloitte's Global Economics Research Center, consumer spending is projected to grow 2.8% in 2024, followed by a further expected rise of 2.4% in 2025. A thriving e-commerce sector, supported by greater Internet access and widespread smartphone adoption, is expected to sustain healthy consumer spending levels. However, inflationary pressures could emerge as a challenge, potentially limiting consumers' purchasing power.
Growth in Cross-Border Transactions: Companies specializing in financial transaction services are well-positioned to benefit from increasing international trade, growing travel activity and a sustained demand for efficient remittance solutions. Businesses offering advanced cross-border payment platforms are particularly appealing as they facilitate seamless international transactions and effectively manage currency exchanges. These solutions are critical for enabling businesses to receive payments from global customers and make timely payments to suppliers, ensuring smooth operations. The expanding global workforce further drives the need for dependable cross-border remittance services.
Strategic Growth Through M&A: To build comprehensive digital ecosystems, companies in the Financial Transaction Services industry frequently pursue M&A alongside technology investments. These strategies are essential for enhancing service offerings, achieving diversification, expanding customer bases and strengthening global reach. This year, an interest rate cut of a significant 50 bps took place in September, followed by a 25-bps cut each at the Fed’s November and December meetings, respectively. Fed officials have hinted at two probable rate cuts in 2025. Lower interest rates are likely to encourage companies to seek loans for M&A activities, enabling them to conserve cash reserves while driving growth.
Zacks Industry Rank Instils Optimism
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. The Zacks Financial Transaction Services industry is housed within the broader Zacks Business Services sector. It currently carries a Zacks Industry Rank #78, which places it in the top 31% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Before we present a few stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector but Lags S&P 500
The Zacks Financial Transaction Services industry outperformed its sector but underperformed the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has grown 26.2% compared with the Business Services sector’s gain of 24.5%. The S&P 500 has rallied 29.7% in the same time frame.
One-Year Price Performance
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Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, commonly used for valuing financial transaction services stocks, the industry is currently trading at 25.6X compared with the S&P 500’s 22.67X and the sector’s 25.65X.
In the past five years, the industry traded as high as 33.16X, as low as 19.24X and at the median of 25.01X.
Forward 12-Month Price/Earnings (P/E) Ratio
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Five Stocks to Keep a Close Eye on
We are presenting five stocks from the Financial Transaction Services industry that currently carry a Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to retain these stocks in their portfolio as these are well-placed to generate growth in the long haul.
Visa: Based in San Francisco, the company is a prominent global player in digital payments. It continues to grow its network by forging new agreements, renewing existing partnerships and executing strategic acquisitions. Solid performance in Latin America, Canada and the United States fuels its growth. Increased consumer spending drives higher transaction processing fees, contributing to revenue growth for Visa. The company prioritizes technology investments to strengthen its advanced digital solutions.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Visa’s fiscal 2025 earnings is pegged at $11.23 per share, indicating an 11.7% rise from the year-ago figure. V’s earnings beat estimates in each of the last four quarters, the average surprise being 3.04%.
Price and Consensus: V
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Mastercard: Headquartered in Purchase, NY, the company actively collaborates with financial institutions and makes significant investments to maintain its leadership in the global payments market. Its Mastercard Cross-Border Services platform facilitates secure international money transfers across 30 countries. In the first nine months of 2024, cross-border volume increased 17% year over year in local currency. Strategic acquisitions have strengthened the operational capabilities of the company.
The Zacks Consensus Estimate for Mastercard’s 2024 earnings is pegged at $14.47 per share, indicating an 18% rise from the year-ago figure. MA’s earnings beat estimates in each of the last four quarters, the average surprise being 3.16%.
Price and Consensus: MA
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Fiserv: Based in Wisconsin, Fiserv provides a comprehensive portfolio of offerings, including payment processing, core banking platforms and digital banking solutions. Its business model capitalizes on recurring revenue streams and high incremental margins from its scaled processing operations, supporting both growth and profitability. The company focuses on achieving superior performance by acquiring new clients, strengthening relationships with existing ones and offering value-added solutions.
The Zacks Consensus Estimate for Fiserv’s 2024 earnings is pegged at $8.77 per share, indicating a 16.6% rise from the year-ago figure. FI’s earnings beat estimates in each of the last four quarters, the average surprise being 3.05%.
Price and Consensus: FI
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Fidelity National: Based in Jacksonville, FL, Fidelity National is seeing revenue growth fueled by strong performances in its Banking Solutions and Capital Market Solutions segments. The Banking unit benefits from new client acquisitions while the Capital Markets segment is experiencing higher recurring revenues. This company leverages acquisitions to secure multi-year recurring contracts.
The Zacks Consensus Estimate for Fidelity National’s 2024 earnings is pegged at $5.18 per share, indicating an improvement of 53.7% from the year-ago figure. The consensus mark for 2024 earnings has moved 1.4% north in the past 60 days.
Price and Consensus: FIS
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Global Payments: Based in Atlanta, GA, Global Payments is strategically positioned for growth, driven by robust performances in its Merchant Solutions and Issuer Solutions divisions. The Merchant Solutions segment is poised to capitalize on increasing transaction volumes. It has leveraged acquisitions, partnerships and technology investments to strengthen its capabilities.
The Zacks Consensus Estimate for Global Payments’ 2024 earnings is pegged at $11.58 per share, indicating an 11.1% rise from the year-ago figure. GPN’s earnings beat estimates in three of the last four quarters and missed the mark once, the average surprise being 0.32%.
Price and Consensus: GPN
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