How to invest in the new breed of payment providers
Upstart payment providers are taking the world by storm. It’s time for investors to buy in, says Rupert Hargreaves
In 2010, the fastest way to move money on the same day from New York to London was to catch a flight from JFK to Heathrow and deliver it yourself, noted JPMorgan’s 2021 report “Payments are Eating the World”. Fewer than ten years later, thanks to a new wave of payment providers, consumers could make the same transaction at virtually no cost, in any currency, in seconds, to anywhere on the planet.
It’s impossible to put into words how much the global payments industry has changed over the past 15 years. The payments industry is the most valuable part of the financial-services sector, generating $2.5trillion in revenue and $2quadrillion in value flows, supported by 3.6 trillion transactions worldwide every year, according to McKinsey’s Global 2025 Payments Report. And those numbers are growing every second.
When JPMorgan’s report was published, global payments revenues were still recovering from the pandemic, having fallen from $1.8trillion to $1.7trillion between 2019 and 2021. However, since then volumes have jumped to $2.5trillion, driven mainly by growth across Latin America and Europe, the Middle East and Africa (EMEA), where volumes have compounded at a double-digit annual rate.
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Historically, the market was dominated by the big banks and a couple of network operators, predominantly MasterCard and Visa, but as JPMorgan’s report predicted five years ago, payment providers have indeed started to “eat the world”, as consumers demand more and new platforms emerge that have to fight for market share.
Payment providers – going beyond your flexible friend
Over the past two decades, the entire global payments industry has undergone a complete overhaul. Back in the mid-2000s, cash payments accounted for around two-thirds of all transactions in both the US and UK. Larger transactions required cheques or bank transfers, taking several days to process. One of the biggest innovations in the UK was the introduction of the Faster Payments Service in May 2008. The service facilitates real-time payments of up to £1 million, including on weekends and holidays, within 90 seconds. For smaller transactions, the service has largely replaced the older systems, Bacs, Swift, and Chaps, in the UK (but not for larger transactions).
Bacs (owned by independent non-profit Pay.UK) was first introduced in the 1960s in the UK as a faster, cheaper alternative to cheques. Still widely used, payments can take up to three days to process, meaning that, while outdated, the system is still useful for regular direct debits. Swift (The Society for Worldwide Interbank Financial Telecommunication), introduced in 1973, remains the global standard for international payments, which typically arrive within an hour, but can take as long as five days (75% of payments on the Swift network now reach beneficiary banks within ten minutes) and the network covers 11,000 banks and foreign institutions in 200 countries, with almost 60 million transactions passing through the system daily. The Faster Payments Service has more in common with the vast global networks operated by the likes of Visa and MasterCard, both of which are the modern-era, consumer equivalents of Bacs and Swift networks.
Visa was founded in 1958 by Bank of America (BofA) as the BankAmericard credit-card programme, while MasterCard was founded in 1966 as Interbank, a cooperative of regional banks formed to compete with BankAmericard. Both networks were created to achieve a simple goal: providing faster payment methods than cash or cheques for small transactions. Visa and MasterCard are the credit networks, often described as the rails on which the world’s global payment system operates. Banks issue cards that work on these networks, which is why the Visa or MasterCard logo is featured on almost every plastic card issued (except in China). The logo denotes the payment network used to process payments, not the card issuer; the name of the issuer or bank is usually displayed as well. While Visa and MasterCard facilitate this payment network on cards, bank-to-bank and international transactions are still processed on systems such as Bacs, Swift and local internal payment networks.
The next key part of the process is the acquirer/ processor function. Three of the key players in this segment are Fiserv, Global Payments and Worldpay (the latter are in the final stages of finalising a merger). These have historically been the go-to service providers for the hardware (card readers) and the back-end connection to the bank. They help mid- to large-scale businesses fulfil key payments processes and manage relationships with all other stakeholders. Fiserv’s customer-facing software is called Clover, a cloud-based Android point-of-sale (POS) and business-management system. This system reads the customer’s card when it’s swiped or scanned, and then sends the data via Fiserv to the Visa network. Visa asks the user’s bank if there’s enough money or credit in the requested account. If the answer is yes, the message is transmitted back via the Visa network to Fiserv, and the Clover terminal acknowledges the sale and prints a receipt. The whole process takes milliseconds.
These companies have built systems and economies of scale that can handle huge numbers of transactions all over the world, as they have the scale, global logistics, hardware and software support that would be almost impossible to build from the ground up.
American Express: the first payments revolutionary
If there’s one true revolutionary payment provider, however, it’s American Express. Since its founding, American Express has been a truly integrated payment provider. It was founded in 1850 to meet the growing demand for shipping across the rapidly expanding regions of the US. Thanks to the company’s reputation and country-wide network, users started to trust it with handling their money and valuables, in a world where cross-country, let alone global, payments were virtually unheard of.
To meet the demand, American Express (Amex) introduced American Express Money Orders and Travellers’ Cheques in the late 1800s, which quickly became new forms of currency worldwide. (Travellers’ cheques, interestingly, simply modernised a very old idea. The Knights Templar developed them in the 1200s, coming up with a secure system for pilgrims to deposit money in Europe and withdraw it in the Holy Land, using coded letters of credit.) American Express presided over another massive shift in payments when it launched the American Express Card in 1958, widely regarded as the first true credit card.
What sets Amex apart is the fact that it’s both a network and a credit provider (a bank, in other words, or a closed-loop provider that services the whole customer relationship). As Amex keeps customers’ assets and liabilities on its balance sheet, its balance sheet is several times larger than those of its peers, Visa and MasterCard. It has also always targeted more affluent customers, with an annual fee attached to the card and network processing fees of around 2.5%-3.5%, compared with 1%-3% for Visa and MasterCard transactions. That extra cost comes with added benefits, such as reward schemes, travel insurance and a global concierge service. The average annual spend on American Express cards in the US is 2.9 times that of cards on other networks, while the average annual spend on American Express cards issued outside of the US is four times that of the spending on cards on those other networks internationally.
However, Amex is tiny compared with Visa and MasterCard. In the US, Amex has been accepted at 99% of places that take credit cards since the end of 2019. Internationally, penetration is far, far lower. Since 2017, the company has grown the number of merchant locations that accept Amex by nearly five times to 160 million, but there are still big gaps, especially with smaller, local retailers.
American Express is now looking to the next stage of growth. Early last year, the company partnered with Alipay, the open platform for payments and digital services in China, to facilitate inbound digital payments into China, enabling travellers and tourists to spend across borders. The group was also the first foreign payments network licensed to clear Chinese yuan transactions in mainland China. The company also teamed up with Coinbase last year to launch the Coinbase One Card, on the American Express Network. This card gives unlimited cash back in Bitcoin of between 2% and 4% of purchases, depending on assets held on the Coinbase platform, and allows users to pay their credit-card bills in Bitcoin as well as other cryptocurrencies.
American Express is one of the best examples of the power of the global payments industry. The group has transformed day-to-day payments over nearly the past two centuries, breaking down borders, speeding up payments and transforming the relationship between credit and network providers and the end customer by offering benefits and good service. Yet now there’s a new crop of businesses that are becoming increasingly ingrained in the fabric of the global economy.
From PayPal to Venmo: the new kids on the block
Global finance is now moving from a world of swiping cards and handing over cash to invisible payments embedded directly into the software we use for work and shopping. At the same time, payment providers are shifting business models away from increasingly commoditised payment services towards value-added services, taking a leaf out of American Express’s book. If payments were starting to “eat the world” five years ago, they’ve moved past the starter and are well into the main course today.
PayPal was one of the first companies to make the stride into the modern, online-first era. Founded in the late 1990s, PayPal’s internal payment network became the go-to platform for the use of the fledgling auction platform eBay as the internet unlocked a new market for small businesses and consumer-to-consumer payments. The auction platform acquired the company in the early 2000s.
One of PayPal’s advantages is its front-of-house software, which is embedded with the processor that handles the back-end work and the network. Money sent from one PayPal wallet to another never needs to touch an external network such as MasterCard, Visa or American Express. Over the years, the company has added tools to help businesses manage their transactions, accounting and cash flow (via working capital loans). It has also worked to streamline the experience for customers; PayPal’s “buy it now” became the gold standard for a streamlined, secure checkout.
Since its spin-off from eBay in 2015, PayPal has rapidly expanded its footprint by acquiring Venmo (via the Braintree acquisition), Xoom (for international transfers), Honey (for shopping discounts) and iZettle (for physical store hardware). Venmo has become so popular in the US that it’s sometimes used as a verb (“to Venmo”). Users have their own wallet in the Venmo app and can pay friends (or small businesses) from that wallet using a QR code or a username. Like PayPal, when money is deposited on the platform, it remains on the Venmo ledger, with the company taking a small slice out of each transaction. Users can transfer money from their bank or use Visa/MasterCard to pull money into their account. Fees are higher for Visa/MasterCard transactions.
PayPal was really the first of the next generation of online, integrated, international payment platforms designed to empower small businesses and customers to move money cheaply and quickly around the world. For small businesses, it also removed the need to try to negotiate with the likes of Worldpay and Fiserv, both of which are just too large to care about trying to work with smaller businesses.
The rise of digital wallets and BNPL schemes
Stripe, Block (formerly Square), SumUp and Adyen have taken on the model PayPal pioneered. Stripe is one of the world’s most valuable private companies, having carved out a profitable niche with its simplicity. Its “seven lines of code” model means a developer can set up a checkout page in minutes without ever speaking to a salesperson. It also arrived on the scene at a key point in the development of the internet. Stripe runs the software behind entrepreneurial and gig-economy apps such as Shopify, Lyft and Airbnb, where payments are split between the platform, buyers and sellers.
This is where PayPal should have had an edge, but Stripe’s simple interface helped it take market share. The group has also developed the software powering complex subscriptions for companies such as Netflix, OpenAI and Slack, handling features such as free trials, “prorated” upgrades, and “failed card” retries. On top of this, the company has moved into the physical world with the Stripe Payments terminal for small businesses, which serves the same role as a platform such as Clover. The terminal also connects to the Stripe dashboard and accounting software, streamlining payment, accounting and forecasting for small businesses.
Compared with Stripe, Block’s system is more suited to in-store, in-person transactions for small and medium-sized businesses. Adyen, on the other hand, is best for large enterprises needing more control and unified omnichannel (online/in-store) payment processing. SumUp is aimed squarely at small businesses, mobile vendors, coffee shops, boutiques, and pop-up stores, with flat fees, integrated business accounts, card readers that are easy to use with 4G/Wi-Fi, and plug-and-play setup. Another group that’s stepped into the market is Shopify, an all-in-one e-commerce platform that provides tools for anyone to create, manage and grow an online business. It is gaining serious traction with larger merchants.
Stripe and Block stepped into the market just as another payment revolution was taking place – contactless and wallet payments. Digital wallets, such as Apple Pay, Google Pay and PayPal, now account for more than 60% of global e-commerce transactions and, in the US, Apple Pay now controls roughly 49% of the mobile wallet user base. Digital wallets are software applications that store payment information and enable secure transactions using mobile devices, replacing physical cards and cash. Security is enhanced through encryption and biometrics, such as fingerprint/ face ID scans. The key selling point for both consumers and businesses is convenience. Digital wallets don’t require bulky card terminals. Businesses only need compatible devices, or even just printed QR codes. Digital wallets have accelerated the growth of digital payments, particularly for SMEs, which in the UK at least account for 99.9% of all private-sector businesses. Buy-now-pay-later (BNPL) providers such as Klarna and Affirm have only added fuel to the fire.
BNPL providers have more in common with traditional banks’ credit-card businesses, with added flexibility. Users can open accounts in minutes, pay via digital wallets and manage all payments through a single app, with clearly defined repayment terms. Research has shown that offering BNPL as a payment method leads to more transactions and higher customer spending. Industry volumes have risen ten times since 2019 to $217billion.
The best payment provider stocks to buy now
Technology has opened up a whole new world of payment methods and consumers and businesses now have more choice than ever before. But in this huge market, power is consolidated in the hands of a few core players, and these are the ones that look best-positioned to continue growing as the volume of payments flying around the world every second continues to increase.
The most appealing buys for investors are MasterCard (NYSE: MA) and Visa (NYSE: V), the world’s two most important payment networks. Visa recorded a 10% rise in transaction volumes in 2025, and earned net income of $20billion on just $100billion of assets, which shows just how profitable these businesses have become. MasterCard reported $14billion of operating income on $53billion of assets. Both companies booked a net margin in the region of 50%.
Block (NYSE: XYZ) and Klarna (NYSE: KLAR) also look appealing as they’re both still in growth mode. UBS believes Klarna’s total addressable market is around $10trillion. If the company can gain 10% of that, it would mean a ten-times increase in the current payment volume going through the Klarna platform. Block, meanwhile, is only just getting started. Transactions on the company’s Square platform outside the US jumped 26% in the third quarter.
In the UK, it could be worth considering Paypoint (LSE: PAY). Paypoint is tiny in comparison with the likes of Block and Stripe, but has a tight hold over the UK convenience-store market, where its technology helps small businesses manage payments and customers pay bills, such as council tax. It’s highly cash generative and offers a dividend yield of 4.1%.
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Rupert is the former deputy digital editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert has written for many UK and international publications including the Motley Fool, Gurufocus and ValueWalk, aimed at a range of readers; from the first timers to experienced high-net-worth individuals. Rupert has also founded and managed several businesses, including the New York-based hedge fund newsletter, Hidden Value Stocks. He has written over 20 ebooks and appeared as an expert commentator on the BBC World Service.