Vantiv’s Cards And Services Benefit From New Tech
The time when customers paid for their purchases by swiping their credit cards and signing a paper receipt is coming to an end. New cards with a microchip and PIN have made their inroads into the financial payments market. And October 2015 marks an important steppingstone in this transition.
Payment processor Vantiv (NYSE:VNTV) stands to benefit from this industrywide shift. The Ohio-based company operates on both sides of the same market: It provides a full suite of payment services to merchants on the one hand; and on the other, it produces the physical cards for financial institutions across the U.S.
Thanks to its extensive distribution network and access to both large and small merchants, Vantiv is the second-largest merchant acquirer in the U.S., representing an 18% market share in total payment transactions, overtaking a unit of Bank of America (NYSE:BAC) in 2014. First Data ranked at the top. Vantiv also ranks as the No. 1 U.S. merchant acquirer in PIN debit transactions. An acquirer is a bank or other institution that accepts card payments in the merchants’ behalf.
On the financial services side, Vantiv holds a 10% market share in the U.S., representing more than 1,400 banking and financial customers. “It is the electronic middleman that enables and links electronically retailers and point-of-sale systems to the card brands and to the card-issuing institutions,” said Raymond James analyst Wayne Johnson.
Among its clients are Macy’s (NYSE:M), Office Depot (NASDAQ:ODP), Kroger (NYSE:KR), Walgreens Boots Alliance (NASDAQ:WBA), In-N-Out Burger, Wendy’s (NASDAQ:WEN), Comerica Bank (NYSE:CMA) and Fifth Third Bank (NASDAQ:FITB). More recent additions include Rabobank, Capital One Financial (NYSE:COF) and the U.S. Postal Service.
Among The Big Processors
The company ranks fourth among 28 names in IBD’s Finance-Credit Card-Payment Processing industry group. Other players in the group include Blackhawk Network (NASDAQ:HAWK), Total System Services (NYSE:TSS)and Heartland Payment Systems (NYSE:HPY). The group itself is ranked No. 29 among IBD’s 197 industries.
Originally a spinoff from Fifth Third Bank, Vantiv loaded up on technology and additional distribution capabilities to conquer the fast-growing market of electronic payments. It expanded its growth organically via a strong referral business and inorganically through a few key acquisitions.
As a result, it’s been able to grow revenue at a 40%-plus rate for the past nine consecutive quarters. Earnings per share increased 15% to 26% during the past six quarters. Its stock is up 36% so far this year.
The transition to chip cards, or what the industry calls EMV migration, has challenged the industry. October is the target for the so-called “liability shift.” After the shift, when a transaction takes place, the party with the weaker technology will bear the cost of the possible hack or fraud.