Shift to Credit From Debit Lifts Visa, MasterCard: Analyst
More people are using credit cards over debit cards, and that's pushing growth at MasterCard and Visa, Sterne Agee analyst Greg Smith told CNBC Wednesday.
According to First Data, which processes information for the credit-card companies, credit-card use is up more than 10 percent in the third quarter, compared with 6 percent for debit cards, which takes payments directly from a checking or savings account.
"They've had a pretty good run," Smith said of credit cards. "Credit cards are a very good business. As you look ahead, debit cards are a little less profitable, so expect banks to push people to credit."
Banks have been pushing credit cards over debit cards since the Dodd-Frank financial law was passed. In particular, the law's Durbin amendment severely restricts what banks can charge merchants who allow customers to use debit cards to purchase goods.
Banks have been trying to recoup that lost income, most notably Bank of America , which faced considerable resistance when it tried to charge a $5 feeon its debit card and eventually ended that plan.
Smith, who has "buy" ratings on both companies, has a $110 price target on Visa stock and a $430 price target on MasterCard's . While he said valuations on both companies are similar, he favors Visa a bit over the faster-growing MasterCard because it has less exposure to Europe.
Visa Europe, he explained, is not part of the publicly traded Visa, but MasterCard "is a single global entity, so western continental Europe is part of MasterCard, the public company."
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Neither Greg Smith nor his company own Visa or MasterCard shares, but Sterne Agee makes a market in the stock of both companies.