MasterCard (MA) Kills Signatures, is it a Good Investment?

Signing for a MasterCard (MA) purchase will be a thing of the past next year. MasterCard (NYSE: MA) will make signatures optional for all purchases on its network.

MasterCard plans to eliminate signatures in April 2019. Notably, there will no longer be a signature panel on MasterCards made after that date, a press release indicates. Instead, signature panels will be optional.

Eliminating signatures is not a great change because 40% of Americans admitted to never signing the back of their cards. Under those circumstances, merchants and financial institutions will decide if a signature is necessary.

Why MasterCard (MA) Hates Signatures

A combination of EMV chips, advanced fraud management technologies and MasterCard’s (MA) Zero liability coverage make signatures unnecessary, the press release claims. Moreover, the increasing use of mobile wallets which use personal identification numbers (PINs), fingerprint scans, and facial recognition technology making signatures redundant.

Additionally, more advanced technologies like Fingopay are entering the market. For example, FingoPay uses Hitachi VeinID technology to allow payments.

To explain, VeinID scans the veins inside your finger with infrared light. If the veins match a pattern stored in a cloud-based matching system, Fingopay pays. Fingopay is being tested at several universities in Europe and London’s Proud Bar.

MasterCard (MA) has a technologically advanced payments platform

MasterCard’s actions doom signatures because there were 618 million MasterCard (MA) credit cards worldwide in 2nd Quarter 2018. In addition, there are 218 MasterCard credit cards in the United States, Statista estimates.

The lack of signatures shows MasterCard (NYSE: MA) has one of the world’s largest and most advanced payments platforms. For example MasterCard claims its payment network serves 2010 countries.

Unfortunately, I was not able to learn how many transactions a second MasterCard’s network processes. On the other hand, Visa (NYSE: V) claims to process 24,000 transactions a second.

Therefore, it is safe to assume that MasterCard processes around 24,000 transactions a second. I make this conclusion because MasterCard and Visa presumably use technology with similar capabilities.

Why MasterCard (MA) is better than Cryptocurrencies

Consequently, MasterCard’s (MA) network is far faster than any known cryptocurrency. In detail, Ripple (XRP), the cryptocurrency with the highest transaction volume, reportedly handles 1,500 transactions a second, HowMuch claims.

Note: this figure could refer to the RippleNet or Ripple’s remittance corridors and not the Ripple currency. In detail, the RippleNet is a global payments network the organization behind Ripple is building. Currently, RippleNet’s main business is transmitting remittance money between nations.

In comparison, Bitcoin (BTC) only processes seven transactions a second and Ethereum (ETH) only processes 20 transactions a second. Markedly, HowMuch estimates PayPal’s (NASDAQ: PYPL) network has a volume of 1,500 transactions a second.

The transactions-per-second (TPS) number is vital because it determines how many people can use a network. For instance, Bitcoin could only service seven customers at once which is not a mass market. Under those circumstances, Bitcoin (BTC) could not handle the payments from a large grocery store.

Is MasterCard (MA) Making Money?

MasterCard (MA) has an impressive payments platform but does it make money? The answer is yes.

For instance, MasterCard reported a gross profit of $3.65 billion that equalled its revenue of $3.65 billion on 30 June 2018. Therefore, MasterCard achieved a 100% gross margin during 2nd Quarter 2018. Additionally, MasterCard reports an operating income of $1.936 billion and a net income of $1.569 billion for 2nd Quarter 2018.

That led to an operating cash flow of $1.480 billion and a free cash flow of $1.364 billion cash flow for 2nd Quarter 2018. If these figures are correct, MasterCard is generating a lot of cash from its transactions.

Importantly, MasterCard has a lot of money in the bank. For instance, MasterCard recorded $7.745 billion in cash and short-term investments on 30 June 2018. Thus, MasterCard (MA) is keeping a lot of the profits from all those transactions.

MasterCard (MA) is a Great Dividend Stock

That is good news for MasterCard (NYSE: MA) shareholders who were enjoying a dividend yield of .49%, an annualized payout of $1, and a payout ratio of 15.6% on 20 October 2018. MasterCard shareholders will enjoy a 25¢ cash dividend on November 9, 2018.

MasterCard has paid a growing dividend for the past six years. I the dividend and the 100% gross profit makes MasterCard undervalued at $202.43 a share on October 23, 2018.

If you are seeking an income stock in payments, MasterCard is it. The company offers a lucrative business and a good dividend.