Global Equities

Stock story: Visa

The move towards a cashless world is helping a company with 3.1 billion cardholders.

Visa owns the world’s largest payments network. About 3.1 billion Visa credit and debit cards have been issued by 17,100 financial institutions. More than US$630 trillion in payments flow over Visa cards annually, while the cards are accepted at more than 40 million merchant locations as well as eight million other (mobile) points worldwide.

Visa, which traces its history to 1958 when Bank of America came up with the concept though the name Visa only appeared in 1976, provides a network that ‘switches’ payment information between cardholders’ banks and merchants’ banks around the globe. It charges the banks fees, being small percentages of the value of transactions, and earned $15.1 billion in revenue in fiscal 2016. Importantly, Visa does not extend credit to cardholders – people go to their banks for that.

Visa is a privileged member of a select group of global payment networks, alongside MasterCard, American Express and PayPal. That PayPal is the only new successful global payment network since the launch of MasterCard in the 1960s shows how hard it is to establish a payments network because a newcomer needs simultaneous acceptance by consumers and merchants. This requires mass awareness, simplicity of payment, technology ubiquity, meeting regulatory requirements and fulfilling arduous customer and merchant servicing needs.

Even the fresh competition in the payments sector helps Visa. Apple Pay, Samsung Pay and Android Pay are among those offering mobile and in-app payment facilities via their mobile handsets and through over 1,000 applications. But these companies do not have direct payments relationships with consumers and merchants. Instead, they piggyback the existing infrastructure. That means that the growth of mobile payments increases payments traffic on Visa’s network.

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