The kingpins of the payment processing universe, Visa (NYSE:V) and Mastercard (NYSE:MA), continue to show strength as the macroeconomic environment works in their favor. Amid rising interest rates over the past few years, one thing that has remained relatively strong is consumer spending. Last quarter, consumer spending increased by 4.2%, the fastest pace since Q1 2023. In December alone, spending rose by 0.7%, topping analysts' estimates.

The Bureau of Economic Analysis report also shows that Americans were saving less to spend more. Income increased by just 0.4%, which was less than spending, meaning that people reduced their savings to make up the difference. This isn't a great sign for Americans' personal finances, but it helps companies like Visa and Mastercard. More spending drives higher payment volumes that go through these companies' networks. These companies mainly generate revenue by charging fees on the value of transactions.

Both companies saw strong increases in payment volume that went through their networks in the final quarter of 2024. The figure grew by 9% for Visa, an acceleration from 8% in Q3. For Mastercard, the figure increased by 12%, up from 10%. These are the most important drivers of revenue growth for both firms. They helped Visa's revenues increase by 11%, and Mastercard's revenues rise by 16% on a constant currency basis. This topline growth helped Visa and Mastercard increase their adjusted earnings per share (EPS) by 14% and 22%, respectively.

Looking back at the first trade war Trump started with China can provide some insight. Trump began to put tariffs on China in Jul. 2018, before significantly reducing them in Jan. 2020. Through that period, Visa and Mastercard stock rose by 53% and 43%, respectively. Both companies' cross-border transaction volume increased substantially over that time. Theoretically, tariffs could negatively impact cross-border transaction volume as consumers don’t want to pay higher prices. However, this can lead to consumers simply switching to similar products from their home country, which Visa and Mastercard can still collect fees on.

Ultimately, the big worry for Visa and Mastercard around tariffs is that they could substantially reduce economic growth, leading to a reduction in payment volume. This is a real possibility if tariffs are in place for an extended period. Forecasters at JPMorgan Chase & Co. (NYSE:JPM) would lower their growth forecasts by 0.5% to 1% if tariffs on Mexico and Canada were in place for an extended period. However, they also forecast inflation to increase by the same amount. Inflation due to tariffs raises Visa and Mastercard's payment volume and corresponding fee revenue.

Visa and Mastercard allow much of the world economy to operate, and they can continue expanding. The payments industry is massive. It stretches from everything to cash, card, check, wire payments, invoicing, disbursements, and remittances. Mastercard believes there is a $154 trillion total serviceable payment volume market it can target. Just think of all the payments in emerging market countries that still use cash over cards. In 2024, Visa and Mastercard combined for approximately a total of $24 trillion in payment volume. This signals that there is substantial room for these companies to grow into their total market as digitization expands.

Analysts on Wall Street broadly raised price targets on both firms after their latest results. The average of analysts' price targets after recent earnings suggests a 12% upside for Visa and a 14% upside for Mastercard versus their Feb. 3 closing prices. Overall, I remain bullish on Visa and Mastercard shares. Barring a global economic slowdown or recession, these stocks can continue to impress.