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Visa: A Tollway On Global Payments

May 03, 2020 7:08 PM ETVisa Inc. (V)MA23 Comments
The Profit Hunter profile picture
The Profit Hunter


  • Visa has built a cozy eco-system which appears impregnable.
  • Examining each part of the eco-system helps us to consider the potential for its longevity.
  • To date, the payment giant has skillfully managed to balance the oftentimes competing interests of consumers, banks, merchants and other digital payment networks extremely well.

The Basics

First, let’s cover some of the basics on Visa’s (NYSE:V) business model. Payment networks like Visa and Mastercard (MA) act as a middleman between merchants and issuing banks. They collect a fee from the merchant which is largely paid out to the issuer of the card. These fees help the issuer pay for cardholder benefits such as rewards and a fee is paid per transaction to the card network according to contracted terms. A small fee is also paid to the acquiring bank.

ACH Payments Pose Limited Threat

Disruption is the age-old question posed around Visa’s moat. Many believe the ACH payment network could replace the card network, enabling payments to be directed from bank accounts directly. There are, however, problems with ACH. It is an incredibly clunky network, less secure and slow to use since it requires real-time checking account verification. On the other hand, VisaNet is more efficient, faster and links all banks in the world. Moreover, consumers do not wish to carry multiple cards or have multiple payment options when they can use the one they trust and are familiar with.

Is Alipay the Exception?

In China, it has proven possible to build an alternative network. Alipay, with its 1bn users, competes directly with the Chinese card operators, such as UnionPay. However, building an alternative that connects to enough banks to offer widespread acceptance is a massive undertaking and Visa’s dominance in the United States allows it to retain global relevance. Nonetheless, there have been attempts in the west to build competing networks. Dwolla was founded in 2008 to facilitate inter-bank transfers between consumers or businesses. However, to date, the venture has garnered de minimis adoption and the model appears unsustainable. Dwolla has struggled to attract banks to take up its own real-time clearing service.

This article was written by

The Profit Hunter profile picture
I am a private investor with 15 years working in global blue chip asset management houses. My investment style involves identifying a handful of high quality businesses with strong competitive moats and durable economic franchises. Once I become comfortable with the investment case, I tend to hold such businesses for years, if not decades. My goal is to share business insights and perspectives.

Analyst’s Disclosure: I am/we are long V. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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