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Why Visa Should Thrive

One thing that it seems most people are missing in this discussion is the massive network effects and virtuous cycles associated with the massive scale and branding that Visa enjoys.

As some have touched on, Visa enjoys an unmatched suite of merchants. It isn't even close. This is an extremely difficult thing to do and is one of the primary reasons why switching costs for banks are so high. Think -- would a bank who is already enjoying 90% of the fee revenue through Visa really care about 1-5% more of the pie when it means *major* sacrifices of breadth and therefore revenue? Conversely, would a merchant switch networks if it meant that it would dramatically inconvenience potential customers? The answer to both is an emphatic no, and is an enormous barrier to entry for V.

For an easy example of this, look to Google. There are massive network effects in search (and, more importantly, search advertising).

In the network business, scale begets scale and is tremendously difficult to overcome for the competition.