The Zacks Financial Transaction Services sector a part of this Financial Technology or FinTech distance, which comprises several businesses with varying character of companies. The business includes payment and card processors, ATM service suppliers, card payment providers, money remittance suppliers, and providers of investment services and solutions to financial advisors.
Here we will underline the payment and card system businesses, which majorly signify this business. The players in this section typically operate their distinctive and proprietary worldwide payments’ system that connects issuers and acquirers across the world to facilitate the shifting of trades, allowing account holders to use their merchandise at countless approval locations worldwide. Monetary transactions are effectuated through those networks, which provide a convenient, fast and a safe payment system in a number of currencies (almost 150) across the planet.
Here are the industry’s three big topics:
• The COVID-19 Pandemic and Alter in Company: The obligations industry has been among this beneficiaries of the COVID-19 pandemic since it resulted in a increase in electronic payments. Since the epidemic prompted individuals to steer clear of physical connections, the online mode of payments obtained a enormous prominence. Especially, the obligations industry continues to be gaining traction in the spike in e-commerce and internet sales. In addition, the continuing coronavirus episode expedited this transition. More and more Americans are currently shopping on the internet and resorting to touchless payments. Per a brand new Crowdfund Insider research, in May, 50% U.S. users reported to possess obtained online payment manners at least four occasions with 69% agreeing that this procedure is significantly more suitable than cash. Research also indicates that this change into contactless payment is very likely to make a sustainable shift in approaches that will endure long after all of the constraints tied into the pandemic becoming raised.
• Investment in Tech: Technological improvements are still a catalyst for discovering the payments sector. The effects of electronic payments is quickly percolating the business, fueled by the proliferation of smart connected devices along with a adoption of technologies that permits payments in fresh surroundings. Businesses are continuously focusing on accelerating the pace, accessibility and security of electronic trades on face-to-face and internet landscapes. Investments are being made in contactless, scan-to-pay and Secure Remote Commerce trades to facilitate a quicker, safer and simpler procedure for customers to cover and companies to get payments. Participants are now turning into the use of blockchain technologies, which ought to further revolutionize the obligations industry by making trades secure, affordable, quick and regulated across the planet. Firms regularly invest in artificial intelligence to help detect and protect against fraud. Progress in these areas must continue to help boost hazard tools and options, and stop deceptions from the whole obligations ecosystem, therefore making it more nimble.
• Consolidation: The energy of scale and volatile changes happening in the payments industry are both main driving forces, hurtling toward consolidation in the payments area. Payments processing is a sticky business, which tends to increase more through acquisitions compared to . This compels players to find a larger market share immediately and expand both horizontally and vertically. This inorganic growth momentum needs to see increased sustenance as players want to improve their size and business extent to offset the stiffening competition.The economic surroundings in 2020 hasn’t been conducive to mergers and acquisitions (M&A) thus much but 2019 indicated a record year in enlarging M&A volume to the sector with $116.6 billion earned in the first six months compared with $31.8 billion in the first half of 2018. The 2019 M&A volume included big-ticket deals, namely Fiserv (FISV)’s acquisition First Data for $22 billion, Fidelity National Information Services’ $35-billion buy of Worldpay along with the $21-billion bargain of International Payments and Total Systems
Zacks Industry Rank Indicates Upbeat Prospects
The Zacks Financial Transaction Services sector is placed within the wider Zacks Business Services sector. It includes a Zacks Industry Rank #61, which puts it at the very best 24% of over 250 Zacks businesses.
The group’s Zacks Industry Rank, that is essentially of the average of the Zacks Rank of all the manhood stocks, suggests bullish near-term prospects. Our study demonstrates that those top 50% of the Zacks-ranked businesses totaled the bottom 50% with a factor of over 2 to 1.
The industry’s placement in the very best 24% of those Zacks-ranked businesses is due to a positive earnings per share outlook for its constituent firms in aggregate.
Before we introduce some stocks you may still wish to think about for your portfolio, let’s take a look at the industry’s current stock-marketplace functionality and its own valuation picture.
Industry Outperforms Sector however Lags S&P 500
The Fiscal Transaction Services sector has played better than the wider Zacks Business Services Sector but lagged the Zacks S&P 500 composite within the last year.
The sector has increased almost 3.7% over this period in comparison with the S&P 500 Index’s gain of 8.03%. However, the broader sector declined 13.8%.
One-Year price Performance
Industry’s Current Valuation
Comparing with the S&P 500 Index on the basis of the forward 12-month price-to-earnings ratio, a commonly used multiple for the industry, we see that the industry’s ratio of 30.87X is higher than the S&P 500’s 22.46X and the sector’s 16.32X.
Over the last five years, the industry has traded as high as 28.03X, as low as 18.09X and at the median of 23X as the chart below shows.
price-to-Earnings Ratio (F12M)
price-to-Earnings Ratio (F12M)
Due to an increasing share of digital payments and the growing e-commerce trend, payment companies are expected to maintain solid revenue growth in the upcoming years.
Since the industry has a wide international presence, the current global economic uncertainty might exert pressure on its overall business volumes, which are largely dependent on consumer and business spending.
Nevertheless, the simplicity, ease, flexibility and numerous other benefits offered by the online and card spending will continue to fuel the industry’s growth. Also, the rise in Gen Z population, which is more tech savvy and highly inclined toward using new-age payment methods, will extend the size of the industry.
However, the industry is expected to witness increased outlays due to technological investment, which might shoot up the overall operating cost.
Elevated marketing and promotional expenditure in the face of stiff competition will be another hindrance to bottom-line growth.
Here are some stocks from the industry that currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardtronics PLC (CATM) is the world’s largest non-bank ATM operator. It is a leading provider of fully-integrated ATM and financial kiosk products and services. The stock presently carries a Zacks Rank of 2.
The stock has witnessed a 3.65% upward revision in 2020 earnings estimates to 85 cents per share over the past 60 days.
price and Consensus: CATM
Fiserv Inc. (FISV) provides financial services technology solutions to more than 12,000 clients worldwide in the banking, insurance, healthcare and investment industries.
The company’s 2020 earnings and revenues suggest 10.5% and 35.35% growth each from the respective year-ago reported figures.
price and Consensus: FISV
QIWI PLC (QIWI) operates as a provider of next-generation payment services, primarily in Russia and the CIS. The company boasts an integrated network that enables payment services across physical, online and mobile platforms. The stock is Zacks #2 Ranked at present.
The company’s 2020 earnings indicate a 3.47% improvement from the figure reported in the comparable quarter last year.
price and Consensus: QIWI
Envestnet Inc. (ENV) is a leading provider of intelligent systems for wealth management and financial systems. The company’s financial network connects software, services and data.
The stock has witnessed an upward revision of 1. )4% in 2020 earnings estimates to $2.10 per share over your past 30 days.
price and Consensus: ENV
FleetCor Technologies Inc. (FLT) is a global commercial payments solution provider. Through its portfolio of brands, FleetCor helps companies automate, secure, digitize and control payments to, or on behalf of, their employees and suppliers.
The stock has witnessed a 0.9% northward estimate revision in 2020 earnings to $10.89 per share over the past 30 days.
price and Consensus: FLT
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