5 Financial Transaction Stocks to Watch Despite Rising Tech Costs

Core Insights - The Financial Transaction Services industry is poised for growth due to increasing cross-border transactions and the expansion of digital ecosystems, despite facing challenges from inflation and rising technology expenses [1][2]. Industry Overview - The Zacks Financial Transaction Services industry is part of the broader FinTech space, encompassing card and payment processing, ATM services, money remittance, and investment solutions [2]. - The industry benefits from the ongoing digitization trend accelerated by the pandemic, facilitating quick and secure monetary transactions globally [2]. Key Trends - Elevated Technology Expenses: Companies are investing heavily in next-gen solutions like cryptocurrency payments and biometric verification, leading to increased technology costs and exposure to cyber risks [3]. - Pressure on Consumer Spending: Inflation and tariffs are expected to impact consumer spending, with U.S. holiday retail sales projected to rise only 3.6% year-over-year in late 2025, compared to 4.1% previously [4]. - Expansion in Cross-Border Transactions: The industry is well-positioned to benefit from the growth in international trade and travel, with sophisticated payment platforms facilitating smooth cross-border transactions [5]. - Strategic Growth via M&A: Companies are pursuing mergers and acquisitions to enhance service capabilities and expand their market reach, with anticipated Fed rate cuts in 2025 likely to lower financing costs [6]. Performance Metrics - The Zacks Financial Transaction Services industry currently holds a Zacks Industry Rank of 153, placing it in the bottom 37% of over 250 Zacks industries, indicating a bearish outlook [7][8]. - Over the past year, the industry has underperformed compared to the Business Services sector and the S&P 500, declining 14.5% while the S&P 500 rose 12.4% [10]. Current Valuation - The industry is trading at a forward 12-month Price/Earnings ratio of 19.93X, lower than the S&P 500's 22.79X, indicating a relatively undervalued position [13]. Company Highlights - Visa: Strong growth driven by cross-border volumes increasing 12% year-over-year, with a focus on technology investments [16][17]. - Mastercard: Operates a multi-rail infrastructure for secure payments, with a projected earnings increase of 12.6% for 2025 [21][22]. - PayPal: Offers secure digital payment options and has expanded its international footprint, with a projected earnings growth of 14.8% for 2025 [26][27]. - Fiserv: Focuses on digital payments and fraud prevention, with a consensus estimate of $8.79 per share for 2025 [31][32]. - Global Payments: Positioned for growth with strong performances in Merchant and Issuer Solutions, expecting a 5.7% rise in earnings for 2025 [35][36].