46
47
CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Section 2.3 – Card Network Industry Overview
sample, in large part due to the cost of bearing cardholder risk and funding cardholder rewards as an issuer. Amex and Discover both generally post lower operating margins than Visa or Mastercard. This is also reflected in lower investor valuations, with Amex and Discover trading at 17x and 10x P/E ratios respectively. 69
EMVCo is “a global technical body that facilitates worldwide interoperability and acceptance of secure payment transactions by managing and evolving the EMV® Specifications and related testing processes.” 64 It is collectively owned by American Express, Discover, JCB, Mastercard, UnionPay and Visa, often known as “global networks”. In this sub-section, we will look at the financial performance of these EMVCo networks. 65 Key takeaways: • Of the six networks, American Express leads the way in terms of revenue generation. • Global card networks Visa and Mastercard remain the most profitable publicly traded payments companies in the payments industry. • Networks have seen more consistency in revenue growth, profitability and margins, when compared to the more volatile acquiring model. Financial analysis of four-party card networks (Visa and Mastercard) demonstrates they have continued to grow revenue due to factors such as economic growth, inflation and digitalization of cash and other payment methods. 66 We can also see consistent, high operating profit margins of 64-66% for Visa and 53-57% for Mastercard, demonstrating the robustness of both companies. This has translated into high valuation multiples (29x P/E for Visa and 36x P/E for Mastercard), despite ongoing litigation and the global threat of regulation (see Section 5). Indeed, Visa is now the most highly valued financial company in the world, with a market capitalization of $535 billion, higher even than JPMorgan Chase($492 billion). 67 Three-party card networks (American Express and Discover) are more effective revenue generators, as they typically take the entire merchant service charge (for example, Amex’s average MSC was 2.29% in 2023 68 , while Visa and Mastercard typically collect between 10 and 20bps in network fees), in addition to generating cardholder fees and interest income. However, the three-party networks are not as profitable as the four-party networks in our 64 Overview of EMVCo | EMVCo 65 UnionPay and JCB are not publicly listed. There is no financial information is publicly available for Union - Pay, but JCB publishes high-level financial data bi-annually, which has been included in this report. 66 The global networks have also stated that revenue growth can also be attributed to strength of network services and enablement of new use cases by the network 67 CMSPI analysis based on Company 10ks & end of year exchange rate. 68 American Express 10k, page 48
70%
60%
50%
40%
30%
20%
10%
0%
2019
2020
2021
2022
2023
Visa
Mastercard
American Express
JCB
Discover
Graph 2.9 – Operating Margin by Margin (2019-2023) 70
69 CMSPI analysis based on Company 10ks & end of year exchange rate. 70 Company 10ks
Powered by FlippingBook