Visa and Mastercard Outshine Credit Card Issuers as Long-Term Buy

The credit card business is often viewed as a single industry category, but it's actually composed of multiple layers with distinct business models. One layer involves lending-based risk, where companies like Bank of America and Citigroup assume the risk of loan defaults.

Another layer involves payment network operators like Visa and Mastercard, which handle transactions between card readers and transaction approvals without assuming lending risks. These companies have shown consistent performance over the past decade, with no decline in 12-month revenue or earnings before interest, taxes, depreciation, and amortization (EBITDA) during that time.

Payment network operators like Visa and Mastercard are well-positioned to tack on new profit centers as opportunities arise, thanks to their duopoly-like control of the payment-middleman portion of the credit card market. While American Express and Capital One have a presence in both payment networks and lending, Visa and Mastercard's long-term upside is rooted in their resilience and growth potential.