Core Portfolio Insight: Visa

Core Portfolio Insight: Visa

October 22, 2021

Visa began in 1958 (then known as Bank Americard) when Bank of America sent thousands of credit cards unsolicited to households in Fresno. At the time, households had an inconvenient amount of credit cards from different merchants, so the idea was that a single credit card would be helpful for households to simplify their shopping experiences. Today, Visa is one of the most valuable companies in the world, with a market cap of $450 billion, facilitating electronic payments worldwide through its superior technology network. 

How does Visa's network work? If you have just eaten a delicious hand-cut steak at an affordable price from Texas Roadhouse, you are likely to pay with a card. You are the cardholder and Texas Roadhouse is the merchant. When you swipe your Capital One Visa card, Texas Roadhouse sends the transaction to an acquirer, like Chase. The transaction connects to the issuer (Capital One in this example) through the Visa network to get the transaction approved and to transfer the money. The acquirer (Chase) pays the merchant (Texas Roadhouse) after taking its acquiring fee. The issuer (Capital One) then bills the cardholder (you) and then you pay the bill to Capital One. Visa takes a small revenue cut of each transaction. 

Visa has many growth drivers, including Consumer Payments, New Flows, and Value Added Services. Consumer Payments is the area where Visa has been strongest historically. To continue growing Consumer Payments, Visa is growing the amount of credentials though an increasing number of partners running on the Visa network. For acceptance, Visa continues to add more locations around the world that will take Visa as a form of payment. Lastly, with engagement, Visa looks to convert a huge amount of cash to digital through new experiences like tap-to-pay. Second, for New Flows, Visa is tackling pain points for various types of transactions, like high-volume, low-value and low-volume, high-value transactions. Visa is offering solutions like Visa Direct and B2B Connect to solve these problems. Third is Value Added Services, which deepen the relationship between Visa and its clients through solutions like security and data analytics. 

Visa is a long-term core holding in GPM portfolios. Its solid growth outlook and strong competitive moat make Visa a GPM Grade Company. Visa solves a number of consumer and merchant pain points. Having one card that you know will be accepted everywhere is a huge benefit for consumers. The Visa brand has a deep history of reliable service and security giving consumers confidence in using the card. For merchants, accepting Visa reduces the costs of handling cash and increases sales and conversion. Visa also enables significant value for its partners. There are many new fintech companies and digital wallets coming to market and they are quickly realizing that partnering with Visa could greatly expand reach. Visa's network consists of over 3.4 billion cards and 61 million merchant locations. Visa handles over $8.8 trillion of payment volume and over 180 billion payment transactions reliably and securely with nearly 100% uptime. 

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