Last week, I drove to Miami on the Florida Turnpike and paid almost $40 in tolls. I can't even begin to count how many cars were going through the tolls. For someone like me, who always likes to run numbers in his head, my small sum of $40 adds up to a large sum when multiplied by thousands of cars every hour.
In investing, the analogy of a tollbooth business is a well-known. Find a company that has tollbooth-like qualities, and you can start counting the cash flow. Whether it's a company that owns a major oil pipeline connecting point A to B, a railroad, or something similar, those businesses are often cash cows.
Looking into the future, I believe the tollbooth businesses of today and tomorrow are perfectly demonstrated in two companies: MasterCard (MA) and Visa (V), the two dominant credit-card processing companies. Most consumers see the two companies as credit-card companies when in fact they are not. They are payment-processing companies. Visa and MasterCard control the world's two dominant payment-processing systems. They make money on that payment infrastructure by branding their names on credit cards issued by other businesses. Every time a card bearing either logo is swiped, MasterCard and Visa collect a fee, very similar to the tolls I paid on the highway.
Perhaps what is most misunderstood or under-appreciated is what these payment networks mean in the future. As technologies such as the smartphone make mobile payments more accessible to the masses, there is a belief that credit-card use will decline or that Visa and MasterCard will one day become victims of mobile technology. Nothing could be further from the truth.
Consider ride-sharing company Uber, which lets you hire a driver in minutes from your smartphone. You also pay the driver via your phone that is linked to a credit card. Guess what happens every time a Visa or MasterCard is used to pay for an Uber ride? A fee is paid.
Apple (AAPL) has launched a mobile-payment system called Apple Pay. Again that system relies on the payment infrastructure set up by Visa and MasterCard. So as Apple Pay grows, so do the number of tolls collected by the credit-card companies.
So if you are looking for a way to ride the future development of the mobile shift in technology, a couple of blue-chip credit-card systems look as exciting as ever.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline on this article.