Visa (NYSE: V) is one of my favorite businesses on Wall Street. It should be an excellent long-term investment. People will always use branded credit cards, and Visa doesn't take a lot of risk. It simply collects a little of the spoils on each transaction. What a model!

According to TheStreet.com, Visa increased top-line sales by 10% in the fourth quarter, and expanded per-share profit by 28% to 74 cents, excluding certain items. Forecasts were for 72 cents per share.

Bruce Watson over at sister site DailyFinance.com highlighted some news that is actually more important than many people might believe. At first glance, it's almost a trite little curiosity. Upon further inspection, its vital nature becomes compelling.

The article discussed the elimination of personal check-writing at retail points of sale. A few Whole Foods Market (NASDAQ: WFMI) locations, as well as 70 Fresh & Easy supermarkets in California, are no longer accepting checks as a viable form of payment. Whole Foods is apparently taking the idea out for a test run, but Fresh & Easy seems to be more serious about the idea.

Visa (NYSE: V), the credit/debit-card arch rival of MasterCard (NYSE: MA), Discover (NYSE: DFS), and American Express (NYSE: AXP), reported earnings for the fiscal first quarter on Wednesday after the market closed. As of this writing, the stock was up well over 9% on very heavy volume. Visa beat expectations quite easily. According to the earnings preview, Visa was supposed to earn maybe $0.66 per share. On an adjusted basis, the card company took in $0.78 per diluted share. Awesome. Revenue was essentially in-line.

Visa (NYSE: V), the famous credit and debit card business, which competes with MasterCard (NYSE: MA) and American Express (NYSE: AXP), reported results for the fourth quarter on Thursday. I came away from them feeling pretty bullish.

No, it wasn't so much the numbers as it was the fact that the credit-card concern constructed a litigation settlement with Discover (NYSE: DFS). The latter had antitrust issues with Visa, and it was a part of the company's story that bothered me. Visa will pony up almost $1.9 billion to Discover to make everything hopefully okay between the two (for more about the settlement, check out Elizabeth Harrow's post). Most of the money was already set aside in a fund in anticipation of the settlement. That's awesome.

And as for earnings, well, Visa lost money on a GAAP basis during Q4 driven by the litigation provision. But on an adjusted basis, excluding that provision and other charges, Visa earned $0.58 per diluted share. That was a penny better than Wall Street expectations.

This makes the Visa story even more attractive than it already was. Honestly, as a long-term investment, Visa should be a winner. I know the economy doesn't rule right now, but I don't think there's anyone out there who believes that credit cards are going away.

Can't say I'm a huge fan of Discover Financial Services (NYSE: DFS). Nothing against the company, of course, but when it comes to credit-card stocks, I'd much rather be aligned with either Visa (NYSE: V) or MasterCard (NYSE: MA). They make money on transactions at the register and don't have exposure to loans. With that bias fully disclosed, let me check out Discover's third quarter results, which the company discussed earlier in the week.

There really wasn't anything in the earnings release that made me want to buy the stock. Net revenues increased 8%, but earnings per share from continuing operations plummeted 27% to $0.37. Nevertheless, that was enough to beat analyst expectations by two pennies. The rough economy is hurting Discover. Charge-offs and reserves against them are negatively affecting the company.

Yet, there is an interesting litigation wrinkle to the Discover story as it relates to Visa and MasterCard. According to Bloomberg, some Wall Street experts believe that Discover may, at some point, settle its ongoing battle with the two card companies for $4 billion. It's a complicated situation, one centering on anti-competitive complaints. In the past, the major credit-card issuers wanted banks to deal with their cards only, effectively shutting out competitive forces. If a settlement isn't reached, then Visa and MasterCard may have to pony up billions more, since damages apparently could be tripled in this case if those two entities were to lose in court. That type of litigation news does represent a risk for those major card companies. Discover, no matter what, looks to be collecting a ton of dough at some point (it will have to share some of the windfall, Bloomberg says, with Morgan Stanley (NYSE: MS), which Discover was spun off from).

I love the long-term prospects of Visa (NYSE: V) and MasterCard (NYSE: MA), but I do have to concede that a pesky lawsuit by Discover (NYSE: DFS) is the one big fly in this story's soup. According to the following article, Discover wants both credit-card companies to pay $6 billion for perceived violations of antitrust regulations. Unfortunately, these damages could be tripled if Visa and MasterCard lose. One of the big problems here is that American Express (NYSE: AXP) already won a settlement of $2.1 billion from Visa late last year and the company established an escrow fund worth $3 billion for litigation payments.

I'll admit, this lawsuit does give me and my credit-card investment thesis a little case of the shivers. After all, tripling $6 billion to $18 billion means that a huge amount of money is in play here, and a successful outcome for Discover would hamper the stocks of the two big card entities. When you read through the litigation risks in Visa's SEC filings (out of MasterCard and Visa, the latter is my favorite since it is still relatively fresh off its IPO and MasterCard has already had a big run), they are pretty scary. And the fact that the $6 billion figure just came to light this week has probably soured the perception of some investors and analysts. Nevertheless, all the previous litigation talk didn't stop Visa's stock from taking off after its IPO earlier this year.

.

There is a great article on Visa (NYSE: V) and MasterCard (NYSE: MA) over at TheStreet.com. It talks about the incredible growth in prepaid cards. A prepaid card is one which has a certain quantity of stored value on it. Think of it as being similar to a gift card, except that a prepaid card can be used most anywhere. Both Visa and MasterCard want to capture as much market share for prepaid cards as possible because they offer the same revenue model as existing credit cards in terms of processing fees.

The wonderful thing about stored-value cards is that they represent the ultimate desire of the business economy: conversion into a cashless society. Not only does business want this, but so does the government, which will probably increase its use over time in terms of distributing monies such as unemployment benefits and social-security funds to individuals lacking bank accounts.

An important point made in the piece is the fact that prepaid cards will take a long time to reach critical mass and to become economically significant for Visa and MasterCard's bottom lines. This must be kept in mind, yet I have to say that I personally think prepaid cards could become more significant sooner than people think, assuming that the two big guns in this area buckle down and make some smart moves. Let me describe what I mean.

Few would deny that the electronic transaction via a credit or debit card is playing a larger role in U.S. and international commerce. And that's good news for Mastercard Inc. (NYSE: MA).

Serving 25,000 financial institutions worldwide in more than 210 countries, Mastercard Inc. (NYSE: MA) is the second largest payment system, behind Visa, issuing credit and debit brand cards that provide access to its transaction network. For a fee, of course.

Further, revenue from those fees and other charges is advancing at a solid pace. In general, analysts expect 15-20% revenue growth in 2007, and 14-17% in 2008. Margins should also be solid. The Reuters F2007/F2008 EPS consensus estimates for MA are $5.57/$6.83.

Other positives: Mastercard has multiple opportunities to increase market share, both domestically and internationally, as acceptance of credit card use for non-traditional purchases grows. International growth opportunities are likely to offer larger market share gains.

The drawbacks? Mastercard remains vulnerable to a U.S./global economic slowdown, and analysts are also watching the appearance of new competitors in the payment space, building price pressure.

The First Call mean rating for MA is: Buy [20 firms]. Mean 2008 target: $210.20 [high: $300, low: $155].

Stock Analysis: Mastercard is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from MA's shares. Sell / Stop Loss: $145.

MasterCard Inc. (NYSE: MA) is one of several companies at the center of the global payments revolution. Around for almost a half-century, electronic payment by credit card (and by its companion, the debit card) started to gain momentum in the 1990s when technological advances enabled more small shops and vending machines to accommodate the cards. Once cost prohibitive, it's now commonplace for customers to swipe cards at drug stores, theaters, in parking garages, and even in taxi cabs.

Analysts see strong growth in the electronic payments sector, and MasterCard is in an enviable position to grab a substantial portion of that business. Analysts see MA's revenue advancing by at least 15% for 2007-2009. Further, analysts see ample opportunities for international expansion: the electronic payments business is in its infancy, a fact that will help offset likely price competition in transaction fees. The Reuters F2007/F2008 EPS consensus estimates for MA are $5.44/$6.59.

The risks? Rival technologies and payment systems, such as PayPal, pose a significant threat, as do e-check systems. Each is likely to increase its market share in the decade ahead. Still, the pie is expanding at such a high rate that MasterCard will likely shine in the sector, moving forward.

Earlier this month on BloggingStocks, I expressed my support for the idea of credit cards for teenagers. I quoted respected personal finance guru Laura Rowley, who wrote this about the credit card industry: "I think those companies are a potentially dangerous enemy, and you have to prepare your child to be a worthy opponent in battle. You want them to conquer this prospective foe, and transform it into a humble servant that does their bidding."

This weekend, The New York Times took the opposite perspective. The piece talks about the cards that are a "hybrid" of credit cards -- Visa gift cards that can be used anywhere Visa is accepted for example. The piece quotes several experts who don't think these products are good for kids. The theory is that kids don't really understand how plastic works, and that they need the feeling of cold hard cash passing from their hands in order to understand the seriousness of money.

According to The Times, these cards "encourage youngsters to assume that money always comes in plastic and that they should spend whatever is on their cards because that's why the cards are there."

But that's where parents should come in. These hybrid cards provide a set of training wheels for kids to learn about how charging purchases works -- in a fail-soft, supervised environment. And consumer credit is a fact of life. With all the benefits that can come from the responsible (i.e., paying it off every month) use of credit -- convenience, frequent flyer miles, etc. -- avoiding plastic is just not intelligent or realistic.

Parents can use these cards to help their kids learn, and that's exactly what they should do. It's all part of transforming the industry into a "humble servant" that can do your child's bidding.

Nearly two weeks ago Douglas McIntyre and Brian White blogged about Wal-Mart's (NYSE: WMT) intention to become a credit company and offer pre-paid shopping cards. The Wall Street Journal expands on Wal-Mart's plans to market a Visa debit card under its own name at about 4,000 U.S. Wal-Mart and Sam's Club locations. This is the latest in a series of moves designed to expand Wal-Mart's presence in the financial services space, although the company withdrew its application for an industrial loan bank charter.

The card will target lower-income workers who don't have bank accounts, and can be loaded with paychecks at Wal-Mart stores. The cards will sell for about $9, in addition to monthly fees and charges for loading funds.

Wal-Mart's not the first company to offer such a service but, if it provides consumers with a good value, this could be one of Wal-Mart's most socially responsible product innovations in a long time. Many workers who don't have bank accounts rely on expensive check-cashing services, and Wal-Mart may be a more affordable alternative to that.