Entering text into the input field will update the search result below

Visa: The Overlooked Risk

Apr. 10, 2023 7:36 AM ETVisa Inc. (V)18 Comments
Bashar Issa profile picture
Bashar Issa


  • The electronic payments industry is facing regulatory scrutiny and increasingly tight consumer protection regulations.
  • Visa's dominance in the payments industry may be challenged by regulatory and technological developments.
  • Current price multiples seem to overlook these challenges, dismissing any concerns over Visa's market position.
  • Investors seem overly confident in V's ability to maintain this market position, as mirrored in its high price multiples.

Visa Plans Largest IPO In U.S. History

Justin Sullivan

Investment Thesis

At the heart of capitalism lies the idea of competition, which incentivizes businesses to operate more efficiently, innovate, and ultimately deliver better products and services at a lower cost to consumers. The Perfect Competition Model, which describes an ideal free market

This article was written by

Bashar Issa profile picture
Bashar is a contributing writer at Seeking Alpha, focusing on Long/Short investment ideas, with a geographic focus in North America. Before that, Bashar worked at an Investment Fund in the United Kingdom. He has a Master's degree in Finance from the Queen Mary University of London and a Bachelor's degree in Economics from Middlesex University.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

Recommended For You

Comments (18)

Regulation is actually a very potent sign of underlying business strength and not weakness. Remember that msft faced almost unsurmountable regulation in the late 1990s-early 2000s and look where the business is today!
You completely miss the possibility that visa could and will find other avenues of revenue growth. Visa is now slowly tapping into block chain technology by partnering up with crypto exchanges to offer traders the very attractive option of swapping their crypto holdings for fiat currency. And visa just recently announced they are partnering with paypal to offer p2p money transfer services. I suspect these are only tips of the ice-bergs, a string of others are sure to follow suit. One of these will be through M&A. Visa and the other payment processors companies are not going to just sit there and watch all their competitive advantages being taken away. Your article is fatally flawed for the simple reason that your entire thesis is hinged on visa being a completely static company. And it is anything but. It is still impossible to book an airline ticket, a hotel reservation or pay for online goods and services without a debit or credit card! Tell me what other company has this sort of monopoly. What else are the alternatives especially for cross-border transactions? Send a bank wire every single time and get hit with a ton of fees?! Yes the processing fees will be reduced but the growing volumes will more than make up for it. If not, then inflation will ensure that happens. And don't forget the entire world operates on credit, people and governments are spending monies they don't have. And credit cards are in the heart of the lending business, there is no way it is going to go away regardless of what acts are passed, it may force the businesses to earn less but that alone is not going to stop people and governments from taking on increasing amounts of debt and with this, the card companies are always going to thrive regardless what controls you put in place to try to stop them.
2021investor profile picture
It is a stretch to assume market multiples are wrong for an extended period of time. V and MA are not tiny underfollowed stocks. Both smart and dumb money is invested in them. The market is a beautiful place where sooner or later, multiples reflect accurately the prospects of a business. The risk of tech disruption or reg scrutiny has been a headline risk to these names for a number of years now, but the multiples have not changed to reflect that. The market doesn't remain stupid and inefficient on such a widely covered stock for years, so the question to ask ourselves is actually, what opportunity could the market be seeing in these stocks (that we are not) such that the market is willing to slap such high multiples on these names for so long? That is the real question if we want to be intellectually honest. Most likely, these stocks will remain market favorites and will grow in line with their EPS growth. Plus they have solid balance sheets, so they may juice up those returns with some shareholder friendly work or smart acquisitions. The biggest mistake people make is question market multiples. Where people should spend 80% of their time but don't is on figuring out the earnings trajectory. That's where the true variant perception will come in. The multiple is what it is - to assume that the market is "wrong" on such a widely covered stock is a really dangerous assumption. For underfollowed stocks, yes, the market can be wrong on multiples because of neglect.
@2021investor You make an excellent point but the market does misprice the value of a business temporarily and very rarely, perpetually. And no company has a "forever" moat. But Visa is probably not going away in the next 20 years at least and probably doing a much a hell lot more business then. The article is fatally flawed because it is completely discounting the ability of the business to innovate and therefore to scout other opportunities for revenue growth.
Reading is never enough profile picture
10 years…is a very long way to think .But if V,MA,AXP,are not one of the best players,well ….then most or all the stocks I own are going to be rubbish.
But I would not add today,but around 200 I would.
@Reading is never enough "...V,MA,AMX" -- assuming AMX is American Express, $AXP.
Thanks for your interesting article on V. It seems to me that all the same risks also pertain to MA. I have been pondering for a while now why these payment network fees are so high. I believe that the greater threat to V and MA is from new competition not so much from government regulation. I had to laugh at: "Since the Great Recession, the financial industry has faced increasing scrutiny and tighter regulations, with governments across the globe becoming more proactive in their efforts to protect consumers and ensure fair competition." I think these regulators want people to believe they are interested in protecting consumers but what their true motivations are is another issue. It is interesting to compare the costs of using the VISA network of .0076 (under the Durbin Amendment) vs the ACH network. The transaction cost of the ACH network i.e. bank to bank payment transfers is .000185 (in 2023) or 41 times the cost per transaction of VISA. Granted there are many differences between the VISA/MA networks and ACH but I think there is a lot of room for new competitors to challenge the status quo.
@Rsgersch Challenge yes but are they able to upset it? Most likely not. The network effect is already there and very much entrenched. What viable competitors are you really talking about?? Apple pay? Google pay? Well first thing they ask you when you sign up on these things is what? Add your card! LOL
Tondog profile picture
Great article, personally working in the shipping industry & having been many places on Earth (I've got the wives to prove it :-O) V & MA r used everywhere...the tech advances such as Square seem to only have increased their reach (like u can literally use ur card at a street hawkers at the Divisoria in Manilla which is a heck of a lot easier than fumbling around with a bunch of Peso's or playing crypto mania). Now as cyber & network security r coming more to the forefront I just don't see anyone (easily) cracking into these franchises. R they over priced currently? Probably but what's the ole saying about better to pay up for a good biz than buy a crapper at a discount?
Thanks. Good read. Visa investor since the days of the IPO…so really not worried. Durban: Totally owned subsidiary of Walmart Enterprises. Regulatory : has been done and Visa will be able to fight with the help of OTHER Senators/pols. Other cards…yes, but Visa is now akin to Apple: Trust and Worldwide availability are paramount. Lastly…provided things get ‘back to normal’….the last real market, China, will eventually have to open itself to Visa….there will be a tit for tat on this….Again, one of the drivers of Visa is…More than 50 years of advertising and ‘perfecting’ of its business model. You bring up valid points but I for one am not really concerned for the next 10 years of so….like with Apple ‘once Visa….always Visa’.
This has been the stated risk for a long time. May happen at some point but I’ve been reading the same thing for years while V performs nicely. Everything has risk.
These regulatory risks already factored into the stock price. And given this continuing risk which is unlikely to lead toanything stock price valuation would seem to be on the lower side
RasmusT profile picture
Great article! However, I would like to point out that every major company/industry is supposedly facing regulatory headwinds, whether it's Visa, Alphabet, Chevron, Meta, Union Pacific or Pfizer. Never make investment decisions based on what the politicians may or may not do, only consider them as a part of the thesis and weigh the probability of that scenario for your risk/reward calculations. As for technological headwinds from competitors, the risks concern almost everyone else too, the tech companies in particular. It's like not buying a house from California, as it sits on the borders of tectonic plates that can cause major earthquakes. The risk is there but how predictable or probable is it in the end? And how much gains are missed in opportunity costs as those headwinds don't materialize in the near future or at all? Interesting thoughts and points made nevertheless!!
@RasmusT Very well thought out and stated.
food for thought .
bluescorpion0 profile picture
Been sayin this all along. Their growth rate will be capped by regulation which should compress their P/E somewhat. But it is not a sell, merely a do-not-add situation. And if you own none of it, I guess a starter at right price is still ok exposure to the industry. What else will you own in payments that is proven? crypto has crashed and burned, banks are risky black boxes..
In my estimation, there are much larger fish to go on the grill before Congress and regulators affect the current status quo. I am long V. Thanks for the article.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.