An average of 3% is added to the value of each credit card transaction made in a foreign country.

Credit cards are used to pay for over $5 trillion worth of goods and services a year. About 4% of this is spent in foreign currencies. This means banks make $6 billion a year on foreign currency transactions.

Tom Bulford in Penney Sleuth UK says Planet Payment (LON:PPTR), a £30m company with a quote on AIM, aims to tap into this market. And, if the company can maintain its growth, it’s certainly one to watch…

Planet Payment is an international multi-currency credit card data processor. Its software is used by the banks and other processors that occupy the rather complex chain that is involved each time you present your credit card.

Essentially, there are two banks involved: the bank that issues the credit card and the bank that receives the payment on behalf of the hotel, restaurant, shop or whatever (known as the ‘merchant’).

The first step is authorization of the transaction. Next, if the credit card is presented abroad, there is a forex transaction. Then there is the payment. Finally, there is the reconciliation and reporting to the credit card holder and the merchant.

To complicate matters further, the banks and processors often outsource some of these functions. This is where Planet Payment fits in.

Planet Payment’s processing system enables two things.

One is a range of reports that can help merchants analyze their sources of business and customer habits. The second is ‘Pay in Your Currency.’

I have never come across this. But then perhaps I don’t travel enough. If, for instance, you visit Saks Fifth Avenue in New York, you will be offered the chance to either pay in dollars and then wait until you get home to find out how much your shopping has actually cost you – the traditional way – or else you can be offered a sterling price. This will appear on your credit bill and will not be changed in the interim.

Not surprisingly, the latter is fast becoming a popular option. It can be backed by a guarantee that the sterling price will be no higher than would have been the case under the traditional method.

Planet Payment offers a single software platform that can be used to process transactions from any part of the world. After expanding especially rapidly in Asia, it is particularly looking forward to the forthcoming Olympic Games in China.

Planet Payment sells to banks and processors. These then sign up merchants, who are offered not only the various analytical reports but also the chance, which they never had before, to keep some part of that 3% foreign exchange fee.

The banks and processors are targeting international hotel and retail groups. Already many of the leading names have signed up. Having done so they are unlikely to suddenly move away. So Planet Payment, which takes a small cut on each credit card transaction, is seeing a very rapid growth of its revenues. Broker Canaccord predicts a quadrupling of the top line in just three years.

First profits are expected in 2009. Canaccord has a price target of 170p – above the 112p at which they trade today and the 125p at which they were priced on their AIM debut in March 2006.

If Planet Payment can maintain its pace of growth, then it could become a stock-market high flier. This is definitely one to watch.

PS. Tom says one little-known London-listed “killer driller” holds exclusive rights to extract a potential 10 billion barrels of oil from underneath British-owned territory. Find out more on this exciting penny share story here…

Source: Planet Payment