The volume of payments processed by MasterCard is a third lower than that of Visa. Despite lower margins - due to a reduced effect of scale - its profitability is nevertheless higher, thanks to a more pronounced use of leverage.
The market doesn't mind this choice - the exceptional quality of the business allows for it - so much so that, historically, it assigns a MasterCard a significant valuation premium over Visa.
The latter is currently quoted at x28 earnings, well below its ten-year average of x34 earnings - despite a growth track record that shows little or no sign of abating. On the other hand, at x35 earnings - for a ten-year average of x38 - MasterCard is still very popular with investors.
Both groups continue to ensure double-digit profit growth, while investing comparatively negligible amounts in fixed assets.
The hallmark of the most profitable businesses, their capital intensity is therefore very low, and their ability to return cash to shareholders quite extraordinary.
By 2023, MasterCard was distributing $11 billion to its shareholders, and Visa $16 billion. MasterCard is off to a flying start in 2024, with earnings per share up 23%. By contrast, Visa's earnings per share grew by "only" 17% over the period.
Over the past six months, MasterCard has devoted $4.6 billion to share buybacks, and distributed $1.2 billion in dividends. This is a questionable choice, given the company's apparently moderately attractive valuation.
All the more so as the underlying business factors could change. In the United States, merchant unions have obtained significant fee concessions from both networks. A similar movement is underway in the UK, and could also begin elsewhere in the near future.
At the same time, the rise of digital payments - via cell phones - could limit the banking intermediation role played until now by MasterCard and Visa.
Not exactly new, this fear is countered by the optimists, who maintain that with a combined volume of administered payments of $25 trillion, nobody is better positioned than the two networks to impose themselves on the so-called "direct" payments market.
