Visa: Payments without borders

Feel free to reach out to PSG Wealth Manager  Dawid Botha  directly.

Visa’s competitors include the likes of Mastercard and American Express. Of the 687.2 billion card transactions processed in 2023, Visa was responsible for 39%, UnionPay (China) for 33% and Mastercard for 25%, with the remaining 3% taken care of by other networks. Outside China, Visa’s global market share is about 57%, as more than 90% of UnionPay’s transactions come from China.

The following numbers (an extract from Visa’s recent full-year results) reveal how Visa facilitates the flow of money around the globe, and the essential role Visa plays in the global economy and our daily lives:

• Visa facilitated 303 billion transactions
• At a transaction value totalling US$16 trillion
• 4.6 billion cards were used
• 150 million pay points were used
• 14 500 financial institutions participated in the payment system

Visa charges a small ‘toll fee’ on every transaction for providing this essential network. The scope of and growth in digital payments, at the expense of for example cash payments, are among the most competitive advantages of Visa’s business. Cash payments still amount to U$26 trillion a year, according to consulting firm McKinsey. However, the 20% or US$6.5 trillion decline in cash payments over the last five years is substantial, and indicative of the increase in digital payments working in Visa’s favour.

Other drivers of revenue growth include an increase in commercial card payments and cross-border payments (earning higher fees), and the need for services like advice and loyalty programmes of the 14 500 financial institutions that Visa partners with.

Establishing Visa’s infrastructure and technology involved substantial costs but the scalable nature of the operations means the cost of processing additional transactions is coming down. This translates into high returns on capital and an extremely high profit margin (currently 57%), which is still increasing incrementally as a result of the positive operating leverage.

In the last financial year ended 30 September, Visa’s revenue rose 10% while earnings increased by 17%. With consumer and business spending being repetitive, Visa has a stable income stream that is constantly increasing thanks to the above mentioned factors. However, it comes at a premium for shareholders – with a price-earnings multiple of 31.3 Visa is not cheap. Nevertheless, considering Visa’s historical price levels this is not expensive.

Visa has a low net debt of US$6 billion compared with the VS$20 billion it generated in free cash flow after capital expenditures for the financial year ended 30 September 2024. This means Visa has more than enough cash to invest in operations or distribute as dividends, or to buy back shares.

The world of payments is constantly evolving through, for example, blockchain technology and cryptocurrencies. Visa has already partnered with 65 crypto wallets allowing consumers to use Visa cards to fund transactions in cryptocurrencies. Visa’s existing technology, industry knowledge, innovative culture and strong balance sheet position the company to capitalise on a growing and dynamic payment landscape. We have been holding Visa for quite some time for clients and still consider it to be a sound long-term investment opportunity in a well-diversified share portfolio.

The Visa share price