The Associated Press reports that William Blair & Co. analyst David Long raised his profit estimates for Visa Inc. and MasterCard for 2010 and 2011 because of increased use of prepaid cards, which is expected to boost profitability.
Long raised Visa's fiscal 2010 earnings per share estimate by six cents to $3.80 and the fiscal 2011 estimate by 11 cents to $4.56. For MasterCard, he raised the 2010 estimate by five cents to $13.50 and the 2011 estimate by 10 cents to $15.60.
Prepaid cards have no credit line attached to them, and they can be used only for the amounts that are preloaded. The user transfers money from a bank account onto the card, or by giving cash to a cashier who swipes the card through a card reader, placing the appropriate balance on it. The cards may be used at businesses accepting similarly branded credit and debit cards and at ATMs.
Acquiring the prepaid cards usually do not require a credit check, so consumers who cannot get a credit card can use the prepaid cards to reserve hotel rooms, rental cars and similar purchases.
"We believe Visa and MasterCard are the prime beneficiaries of the rapid growth in prepaid use, as prepaid growth is contributing to the increase in card use over paper forms of payment (cash and checks)," Long wrote in an investor note.
American Express, Discover, Western Union and Capital One also will benefit from the growth, Long said.
