Indian market looks promising
Mastercard’s (MA) management views India as a significant market for the digital payment industry, as fewer than 5.0% of the total monetary transactions are performed through electronic payments. The company believes that the country’s digital payment market has room to grow.
The Indian digital payment market received a healthy boost after the government’s November 2016 demonetization initiative. With the Indian government’s effort to promote digital payments, Mastercard is expected to register growth in the number of transactions and transaction value.
A Credit Suisse report indicated that the digital payment market in India is expected to cross the $1.0 trillion mark by 2023 from less than $200.0 billion in 2017. This increase represents a five-year CAGR (compound annual growth rate) of ~38.0%. Because Mastercard is one of the country’s leading payment processing companies, it stands to benefit substantially from the robust growth in the digital payment market.
After the demonetization of its 500 rupee and 1,000 rupee notes in November 2016, India’s digital payment market has become so lucrative that major tech companies have also entered this space. In 2017, Alphabet (GOOGL) launched Tez, a mobile payment app, in the country while Facebook (FB) is testing a similar service through WhatsApp.
Warren Buffett’s Berkshire Hathaway confirmed in August that it’s investing ~$356.0 million in One97 Communications Ltd., which is the parent company of India’s largest digital payment platform, Paytm. Chinese e-commerce company Alibaba Group Holding Ltd. (BABA) also holds a substantial stake in One97 Communications Ltd.
Increasing investment in India
The Indian market contributes 3.0% to Mastercard’s total revenues. Looking at the immense growth opportunity, the company announced in 2016 that it planned to invest $800.0 million through 2020 in enhancing processing capabilities, mobile technology and solutions, and data analytics.
Mastercard made its first investment in the Indian market in 2010 by buying a stake in ElectraCard Services, which is a locally based software solutions and payments management firm. In 2014, Mastercard fully acquired the company. Since then, the payment processing company has invested more than $4.5 billion in the Indian market.
Mastercard constitutes ~4.6% of the iShares Edge MSCI USA Momentum Factor ETF (MTUM).