There are many secular trends that have been shaping our economy in recent memory. One area that has deservedly gotten a lot of attention is the intersection of finance and technology.
There are numerous so-called fintech stocks to choose from. However, investors might have their eyes on PayPal (NASDAQ: PYPL) and Visa (NYSE: V), both of which possess favorable qualities. Which of these payment enterprises is the better one to buy in 2025?
One similarity you’ll notice with these companies is that their economic moats are supported by network effects. PayPal has 432 million active users, a base that consists of merchants and consumers. As the platforms get larger, it becomes more valuable to everyone.
Visa, on the other hand, counts a whopping 4.5 billion active cards in use across the globe. These are accepted at more than 130 million merchant locations worldwide. Again, as the card and merchant base grow, the network becomes increasingly valuable to both parties.
PayPal and Visa benefit from the prevalence of cashless transactions, a secular trend that still has a long way to go. According to the Pew Research Center, 58% of Americans still use cash for some or all of their transactions in a typical week. This data is from 2022, so that share has likely come down. However, it shows the runway cashless transactions broadly, and PayPal and Visa specifically, have. This is true even in developed economies.
Investors will definitely appreciate that these businesses are financially lucrative. In the past five years, PayPal’s operating margin has averaged 16.4%. Visa’s crushes this figure, with its average operating margin on a trailing-five-year basis coming in at a ridiculous 66.1%.
There are also some differences investors should keep in mind. For starters, PayPal’s valuation is cheaper. It trades at a price-to-earnings (P/E) ratio of 20 right now. That’s not only a 55% discount to its historical average valuation, but it’s also well below Visa’s 32 P/E multiple. To be fair, though, Visa’s valuation is 8% below its trailing-10-year average.
However, Visa’s premium valuation over PayPal is justified. This is the superior business, with much steadier financial performance and far better profitability.
Plus, Visa faces minimal threats of disruption since it’s so ingrained in our economy, as it handled $16 trillion in annualized payment volume last fiscal quarter. Just imagine the turmoil that would be caused if the Visa network went down. A sizable chunk of global commerce would be on pause.