Visa - The world's largest payment network

It securely and rapidly moves payments between 14,500 financial institutions and more than 150 million merchants. Today there are more than 4.7bn Visa-connected cards in use by consumers and businesses around the world. In addition to processing payments, the company offers a raft of other services to is customers that complement its core offering, such as cyber-security protection and data-analytics tools.

Beautiful business model

Visa’s open network is a beautiful business model that provide benefits to all participants.

• Consumers benefit from using credit or debit cards to make payments, in person or digitally. They can use just one card to make payments and connect their bank account to make payments to all accepting merchants. They also benefit from increased fraud protection and from global acceptance. In recent years many credit cards have also been issued with generous reward programmes, that, for example, offer ‘cash back’ on spending and/or rewards, such as airmiles to be spent with partner brands.
• Issuing banks (the consumer banks that issue the cards) benefit by being the key recipient of ‘interchange fees’ (the card transaction costs paid by merchants), that originally were intended to cover the cost of card fraud, but that has also been used more recently to fund incentives to consumers to use their cards and thus open an account with a specific issuing bank.

The issuing banks have been the biggest financial beneficiaries of the mass-adoption of card spending by consumers.

• Merchants benefit from increased ease, speed and reliability of payments. They do not have to engage directly with their consumers’ banks or provide individual lines of credit. Cards importantly enable remote/digital payments, something cash cannot offer. Merchants also benefit from the network investment that Visa makes in technology to increase security and reliability, a cost that if incurred as a standalone entity would be uneconomical to justify.

The interchange fees merchants pay are ultimately passed onto consumers through pricing.

• Merchant acquirors (the banks of the retailers/merchants) also receive an interchange fee. Whilst they pay fees on behalf of the merchants to the issuing banks they are able to charge their own (smaller) interchange fee to merchants, in exchange for completing the payment. Merchant acquirors also benefit from the technology investment in the network and the ability to reclaim payment from issuing banks for returned/cancelled payments.

The Visa Network and the Flow of Money

The original strategic intention of the development of Visa’s network was to grow credit spending (and thus lending fees), to minimise fraud losses (by enabling traceability) and to simplify payment settlement (by reducing complexity and costs). Rapid innovation and accelerated card adoption in more recent years has also led to banks to issuing cards in order to win new customers (growing deposits), provide additional card services to customers (to win assets and charge fees), and to support international transactions/commerce (and charge fees to customers in return).

For several decades Visa was privately controlled by the global banking industry, with the banks that issued Visa cards and promoted network use, owning all the equity. Bank of America, JPMorgan, Wells Fargo and Barclays were some of Visa’s largest shareholders and biggest drivers of volumes to drive its growth. Whilst the global banking industry was critical to the success of Visa’s network growth, it also acted firmly in its own best interests to ensure that it remained the largest beneficiaries of the beautiful business model, a position it still retains to this day.

Independence

In 2008, in response to growing antitrust concerns over the owning banks being able to eternally raise the network interchange fees for their own benefit, Visa became a public company with a listing in New York.

Visa’s bank shareholders retained their interest, but got locked into the company until 2024 in order to protect the new shareholders from material litigation disputes with merchants (such as Walmart) that started prior to the IPO. As and when such disputes were settled, the banks’ equity stake was diluted by an equal financial value, thus removing the liability risk for the public shareholders.

In 2024, with the majority of outstanding cases settled, Visa allowed the banks to finally start selling their shares. JPMorgan was one of the many that did, reporting a gain on the sale of $8bn. Visa is finally now a totally independent company.

The network of networks

Today in addition to running the world’s largest payment network, Visa also enables business to business, business to consumer, consumer to consumer and government to consumer payments. It also supports payments that are made off its network, such as A2A (account to account) payments directly from one bank account to another. Visa’s management refer to its payment infrastructure as being the “rails” upon which all payments can travel and in so doing, it has established successful partnerships with many other leading payment enterprises (eg Stripe, Meta, Fiserv, Square and Western Union) and it supports payments made in any currency, including crypto.

Visa’s “network of networks” strategy is intended to ensure that whatever the means used to transfer funds from one entity to another, Visa’s network is open and available to support that transaction, anywhere in the world, at any time. The incentive for other payment participants and fintechs to partner with Visa are: 1) to benefit from its unrivalled scale that is essentially impossible to replicate, 2) to share in its technological leadership, 3) to access the security and reliability of Visa’s products and 4) to benefit from its close relationships with the global banking industry and its many regulators.

In return for opening up its network, Visa’s intention is to remain relevant, with its “rails” remaining the most reliable and cost-effective mean to make payments by all industry participants.

The risks: 

Historically the greatest risk for Visa has been US regulation.

• Its size and market position triggered a Department of Justice investigation that has essentially blocked its ability to make any further acquisitions in the US.
• Historic disputes with merchants over card-related fees have impacted Visa’s rating, even though these disputes have focused on the fees the banks charge and not Visa’s low fees (eg 0.1-0.015% per transaction). In 2011 the US government first capped interchange fees, and with heavy lobbying from US retailers.
• Most recently, the US Senate has passed the GENIUS Act, which brings in regulation of Stablecoin. Visa has publicly welcomed this development, claiming it will support growth opportunities upon which the company has already been working on for many years.

Visa continues to provide value to global payments and support to global commerce. Much of the regulatory headwinds it faces are really attributable to the banks who receive the bulk of the interchange fee.

A best-in-class company

Visa is the world’s leading payment network and money-mover, with a 40% share of total global card-based transactions and a 60% share in the USA. The Visa brand is truly global and instantly recognisable. It has been ranked by Kantar as the world’s 7th most powerful brand.

Since we first acquired it in 2009, Visa has been a company of standout quality:

• Average annual revenue growth of 12%
• The operating margin has increased from 52% to 67%, the 3rd highest level of all companies in the S&P 500 index
• A total of $145bn of free cashflow has been generated with $29bn spent on dividends with much of the rest spent buying back 47% of the shares outstanding
• The return on invested capital (ROIC) has increased from 7.3% to 31.4%
• The company has had a net-cash position on its balance sheet for 75% of the time

The outlook for Visa

Whilst the victory of card payments over cash is now largely complete, new growth opportunities for Visa are abundant:

• In “new flows”, or non-traditional consumer payment categories, Visa is targeting the $200tr of global payments being made today, primarily in commercial payments where Visa currently handles just $1.7tr of volume.
• Visa’s “value-added-services” offerings currently generate annual sales of $8.8bn, and the market opportunity is estimated to be worth $520bn, allowing ample capacity for growth in this high margin area. Visa’s sales in this area have been averaging >20% pa for several years and are geographically diverse (60% ex-US).

Since our first purchase of Visa stock in 2009, it has delivered a total return to its shareholders of 1688% or 20.5% p.a. Over the same period, the MSCI All-Country World and the S&P 500 respectively returned 306% and 631%.

Owning Visa has, without doubt. been one of the best ideas we have had.

1 Source: Visa 2025 Investor Day presentation.
2 JPMorgan Investor Relations.
3 Visa 2024 Annual Report
4 Kantar BrandZ Most Valuable Global Brands, 2024.
5 The following data is taken from Visa financial results and Bloomberg
6 Visa 2025 Investor Day
7 Visa 2025 Investor Day
8 Source: Bloomberg