Visa And Mastercard To Benefit From India Cash Crunch

Indian consumers may be suffering amid a cash shortage in the country, but two winners appear to be Visa and Mastercard.

According to a report by Bloomberg, Visa and Mastercard are expected to see an increase in transactions and new cardholders due to the decision by the government to take high-denomination bills out of circulation. Bloomberg, citing analysts who cover the companies, said Visa and Mastercard wanted this type of change in India given the majority of transactions in India are still conducted via cash.

“Visa and Mastercard both benefit as paper currency or checks turn toward electronics,” said Moshe Orenbuch, an analyst at Credit Suisse Group AG, who has a buy recommendation on both stocks, in an interview with Bloomberg. “When we think about where they are investing, they look toward areas where there is the potential to accelerate that transition.”

The analyst said the recent changes in India are “something they know how to move in on.”

Earlier this month, India Prime Minister Narendra Modi announced the country’s 500-rupee and 1,000-rupee banknotes are being taken out of circulation. Taking those notes out of the financial system represents an effort to stymie fraud efforts, corruption and what the BBC reported as “illegal cash holdings.” Modi stated that the illegal activities are among the “biggest obstacles in eradicating poverty” — with a bead being drawn on tax evaders, according to the BBC.

In place of the 500- and 1,000-rupee notes, a new set of 500-rupee and 2,000-rupee notes are being issued as replacements. Banks have 50 days to comply with the new directive, with individuals able to exchange those notes beginning Nov. 10 and extending through Dec. 30. As the site noted, earlier this year, the Indian government garnered roughly $10 billion through a tax amnesty program, through which Indian citizens were able to declare assets and income that had been previously hidden.