Why bother with cash and a lifetime focused on acquiring things versus the ease of swiping cards with the Visa (NYSE:V) logo and the fulfillment of collecting experiences? The sentiment is based on Visa's global ad campaign, which focuses on people who are on the go. Let's look at how Visa and its chief competitor, MasterCard (NYSE:MA), may fit into your portfolio as they endeavor to move individuals and businesses from cash to electronic payment transactions.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Emerging Markets Increasing Volume
Visa generated $1.7 billion in net operating revenue for its fiscal first quarter of 2009, which ended December 2008. The operating revenue tally represents a 17% increase over the same period a year ago, driven by transaction volume in international and emerging markets including Central Europe, Asia Pacific, the Middle East, Africa, Latin America and the Caribbean. (Be sure to read Analyzing Operating Margins to learn more about operating revenue and what it means for a company's profitability.)

MasterCard had an equally successful Q4 2008, reporting operating revenues of $1.2 billion, representing a 14.2% increase over the same period a year ago. MasterCard credited pricing changes and a 6% increase in transactions as reasons for the revenue increase. Much like Visa, MasterCard's fastest-growing regions, in terms of purchase volumes, are South Asia, the Middle East, Africa, Asia Pacific and Latin America.

Credit And Debit Card Issuers
Major U.S. banks including Bank of America (NYSE:BAC), Citigroup (NYSE:C), Capital One (NYSE:COF) and Wachovia, now a part of Wells Fargo (NYSE:WFC), are major issuers of debit and credit cards. The banks rely on the capabilities and identity theft protection services offered by these leading electronic payment processing companies.

Challenging Economic Environment
Both Visa and MasterCard have embraced the challenging economic environment. Let's focus on the operating income margins of each to better understand how earnings have increased in relation to each dollar earned. Visa's operating income margin has increased from 46% in 2007 to 56% for the quarter ended December 2008, while MasterCard's also increased from 16% to 38%. Operating income margin is calculated by dividing operating income by total sales. An increasing number from one year to the next typically means earnings are improving.

Final Thoughts
Look in your own wallet, purse/handbag or fanny pack, and total the number of plastic credit or debit cards you are carrying. Then count how many have the Visa or MasterCard logo emblazoned in the bottom right-hand corner. If you have one or more, consider for a moment how many others have them or will have them in the future. It's presumptuous to assume that cash will ever go away entirely, but it is safe to say that as industrialization spreads, more people are likely to replace their cash with plastic.

To learn more about credit cards, read Credit Cards: Birth Of A Plastic Empire.)

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!