Why I'm Buying More of These Credit Card Titans

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As the largest credit card payment networks, Visa and MasterCard are in an excellent position to profit from the global shift toward electronic payments and away from cash transactions.

As financial services companies, having a respected and trusted brand is of paramount importance. Fortunately, both Visa and MasterCard excel here, too. In fact, both Visa and MasterCard both were named to brand consultancy firm Interbrand's Best Global Brands list for 2013, with Visa's brand value rising 11% from 2012 and MasterCard's rising 8%. 

MasterCard and Visa also enjoy powerful network effects, as each new merchant that accepts their credit cards makes their networks more valuable to consumers, and each new consumer who carries their cards increases the potential pool of customers for participating merchants (thanks to an easier means of purchase and therefore likelihood of sale).

These credit card titans earn a small fee from every transaction that passes through their payment networks, and their tollbooth-like business models produce steady cash flow that Visa and MasterCard pass on to shareholders in the form of fast-growing dividends and share buybacks. It also helps these highly profitable businesses earn impressive returns on capital  -- another strong sign of competitive advantage.

But as massive and as dominant as Visa and MasterCard are, they still have tremendous growth opportunities that lie ahead. That's because about 85% of global transactions still take place via cash or check. The trend toward credit card and digital payments will likely continue for many years, potentially making Visa and MasterCard multidecade growth stories and solid investment opportunities for long-term-minded investors.

And for that reason, I intend to steadily add to my Visa and MasterCard positions over time in Tier 1 Investments, a Real-Money Portfolio that I manage for The Motley Fool. And so, at least 24 hours after this article is published -- standard operating procedure for The Motley Fool's Real-Money Stock Picks program that's designed to give Fools the opportunity to buy ahead of us should they so choose -- I will be buying more shares of Visa and MasterCard in the Tier 1 Portfolio.

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The article Why I'm Buying More of These Credit Card Titans originally appeared on Fool.com.

Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool's Stock Advisor and Supernova premium service teams. You can connect with him on Twitter @Tier1Investor. Joe has no position in any stocks mentioned. The Motley Fool recommends and owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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