The 2020 holiday season recorded better-than-expected year-over-year retail sales in spite of the COVID-19 pandemic induced volatilities. Hence, despite the lingering woes of the pandemic, U.S. retailers are optimistic of a fabulous festive season this year backed by consumers’ inclination toward online shopping, a recovering economy, improved consumer spending and accelerated vaccination programs.
Thus, companies in the payments space, which play a vital role for retail merchants, are expected to benefit in the days ahead. The payment companies offer diversified products and solutions for seamless transactions, which in turn attract more customers to the retailers. The companies have left no stone unturned in rolling out seamless payment processes to cater to higher consumer demand for multiple payment methods and accelerated checkout experiences.
With an increasing number of people embracing digitization, there has been a rise in payment frauds as well, which have affected several merchants. These payment firms have been trying to remedy the situation. Case in point, these companies have been equipping merchants with flexible end-to-end payment protection solutions to counter the scenario.
Although risks related to new variants of the COVID-19 virus and supply chain hassles persist, the following factors are expected to serve as tailwinds for the firms in the payments space.
Surge in E-Commerce Sales
The pandemic induced stringent social distancing norms accelerated the adoption of digital means. During this period, most retailers witnessed a shift toward e-commerce with online holiday shopping gaining significantly last year. Per eMarketer analyst, the holiday season of 2021 is expected to witness strong retail sales growth with the e-commerce sales anticipated to gain 11.3% year over year.
Besides, the pandemic compelled most businesses to rethink payment methods in sync with the evolving needs of consumers. Payment companies have been making every effort to promote contactless payments, and in turn tap the robust potential of mobile wallets. Increasing Internet penetration and higher smartphone usage have been driving mobile money transaction value, and the trend is anticipated to continue amid this year’s holiday season. Additional payment alternatives of buy now, pay later (“BNPL”) and alternate credit offers by payment firms are expected to encourage consumers to engage in increased holiday shopping.
Rebounding U.S. Economy
There are clear indications that the U.S. economy is on the path to gradual recovery. President Biden’s massive pandemic-relief package and large-scale vaccination programs being executed across the United States have been aiding the recovery process. Increased rates of vaccination make consumers more confident about stepping out of their homes. While online sales will continue to account for a significant portion of retail sales, it is the in-store sales that are expected to revive amid the holiday season.
Per the holiday forecast provided by Mastercard’s MA survey Mastercard SpendingPulse, in-store sales are expected to rise 6.6% on a year-over-year basis, excluding autos and gasoline. However, people still remain apprehensive about physical handling of cash or checks. They continue to prefer contactless payment options, which in turn will benefit the wide array of debit or credit cards launched by payment companies.
Improved Consumer Spending
Despite strong holiday season results last year, the purchasing power of Americans remained subdued to certain extent amid the pandemic due to apprehensions regarding unemployment and need to save more. However, stimulus payments to consumers, higher savings rate and gradual reopening of the economy have increased their purchasing power. Consequently, Americans will be inclined to spend more on discretionary products. Per Deloitte’s forecast, holiday retail sales of 2021 are anticipated to witness growth in the range of 7% to 9%, higher than the last year’s gain of 5.8%. Mastercard SpendingPulse expects holiday retail sales to improve 7.4% year over year excluding automotive and gas. The payment companies stand to benefit from the same as it will provide them the opportunity to launch innovative products and services in view of higher in-store shopping and rise in consumer demand.
4 Top Stocks to Watch
These four Zacks #3 (Hold) Ranked stocks mentioned below have been rolling out a diverse range of digital payment solutions, which position them well to gain amid the strong retail sales growth in 2021 holiday season. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Mastercard has been partnering with several organizations and rolling out cost-effective solutions to capitalize on the current prospects in the global digital payments space. It launched an array of seamless solutions in a bid to aid retailers enhance the physical shopping outcomes for their customers. The company continues to make substantial investments and foray into the underserved areas via technological offerings in order to tap the prevailing scenario of consumer shift toward digital options.
For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings suggests year-over-year growth of 22.7% and 26.1%, respectively.
In a year, shares of the company gained 5.8% against the industry’s decline of 6.2%.
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Visa Inc. V continues to utilize advanced technologies for rolling out newer payment solutions. The company has been striving hard to integrate the blockchain technology with its payments platform. The launch of diversified payment alternatives including mobile payments through Visa Checkout and Visa payWave highlight the company’s commitment to retailers. Besides, it has undertaken significant investments to devise enhanced fraud-fighting technologies, which offer security to both merchants and customers.
For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 9.7% and 15.5%, respectively.
Shares of the company have appreciated 15.6% in a year against the industry’s decline of 6.2%.
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Global Payments Inc. GPN is a pure-play payments technology company boasting of a deep expertise in payments technology. The company continues to roll out a wide array of payments technology and software solutions for customers worldwide backed by its expertise. It has partnered with several organizations for extending its nationwide reach in the digital payments space. Global Payments intends to benefit retailers and makes provision for them to accept enhanced digital-based payments.
For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings suggests year-over-year growth of 14.4% and 28%, respectively.
In a year, shares of the company have lost 9.5% compared with the industry’s decline of 6.2%.
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American Express Company AXP has been making every effort to enhance its digital solutions suite for assisting businesses in regulating payments. The company has a proprietary automated accounts payable (AP) solution, American Express One AP. Need for securing payment processes via digitalization has been driving demand for automated AP solutions. The company has also partnered with leading companies such as Discover Financial Services DFS, Mastercard and Visa for offering enhanced checkout experience to consumers.
For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings suggests year-over-year growth of 13.3% and 65%, respectively.
Shares of the company have climbed 77.8% in a year compared with the industry’s growth of 14.9%.
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