Visa Is Being Squeezed by Crypto and Digital Wallets. What to Watch.

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Visa is Baron’s top stock pick for 2022.

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Visa is feeling the heat from payments startup, digital wallets and crypto—and Wall Street is starting to worry.

Mizuho analyst Dan Dolev downgraded Visa (ticker: V) shares from a buy to neutral rating on Friday and lowered his price target from $255 to $220, citing threats to the company’s growth.

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“We are concerned that secular challenges from new competitors will rapidly increase visa volumes,” Dolev wrote in a note published Friday.

visa is a top baron’s The stock pick for 2022 is trading at 30 times estimated earnings of about $7 per share in its current fiscal year. The company is a “juggernaut of the payments business,” wrote Andrew Berry, processing more than $12.5 trillion in transactions a year. Most Wall Street stocks rate a buy with an average price target of $271. Shares traded down 1.3% on Friday at around $217.

Still, the threat to Visa and its main rival MasterCard (MA) is growing as consumers switch to new payment platforms and digital wallets that could bypass the card network or slow their revenue growth.

Among Doleve’s concerns: The growth driver of people giving up cash for cards and online payments could be gone by the end of this decade. This shift from cash accelerated during the pandemic, as did online shopping, debit and card payments. But now the trend has grown so much that it won’t help Visa beyond 2030, potentially affecting 45% of Visa’s historical revenue growth, Dolev estimated.

Visa also faces more competition for card transaction volume as rival payment platforms gain traction. One danger is Plaid, a start-up building a payment bridge between banks, consumers and merchants, potentially cutting Visa as a middleman.

“Plaid … poses a meaningful medium-term threat to Visa’s debit business,” Dolev wrote. “The concern is that over time, Plaid may offer an alternative to Visa’s debit rail.”

Visa tried to buy Plaid in early 2020 for $5.3 billion, but withdrew after the Justice Department sued to block the transaction on antitrust grounds.

Other threats to Visa’s business include peer-to-peer payments via digital wallets, which include stablecoins and cryptocurrencies; A new real-time payment system called FedNow, and payment services such as “Don’t Pay Later” or BNPL, can bypass the card network.

Dolev forecasts that a confluence of threats could reduce Visa’s revenue growth by 1 to 2 percentage points annually through 2024, which is now closer to 13%, compared to the 15% embedded in consensus forecasts. He lowered his revenue forecast for Visa’s 2023 fiscal year from $32.5 billion to $32.1 billion.

Of course, Visa is not stable under these pressures. BNPL transactions can still be carried out on its card system. It is also venturing into digital wallets and developing new revenue streams with its “Visa Direct” system for real-time payments.

The company also sees revenue opportunities in crypto and stable coins designed to maintain a fixed value of $1.

“What we can do is bridge the gap between the crypto economy and the fiat economy,” said Vasant Prabhu, Visa’s vice chairman and chief financial officer. baron’s This week.

The company is working with crypto exchanges such as Coinbase Global (COIN) to facilitate transactions; For example, after crypto is sold and automatically converted to cash, account owners can use the crypto as funding for card payments. Visa is partnering with over 50 crypto wallet providers and developing a “native digital currency” settlement on its card network.

Prabhu added that Visa is also working with banks to develop crypto deposit accounts. “Many banks understand that their customers will love this, and know they can lose deposits because money is moving from bank accounts to crypto platforms,” he said. “Very interested in knowing how to do this.”

However, this will not happen overnight, as banking regulations on crypto are not meeting customer demand. Investors, for now, may need to be more confident that Visa’s new revenue streams will offset potentially slower growth in its core business. Visa stock is up just 2.6% over the past year, compared to a 23.5% gain for the S&P 500.

Write to Darren Fonda at [email protected]

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