Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Viking on February 03, 2011, 04:01:20 PM

Title: V - Visa
Post by: Viking on February 03, 2011, 04:01:20 PM
Visa is a stock I have begun to build a position in since its drop in Dec.

Dominant, world class brand. Growing, global industry -  electronic payments (+20% for next few years). Very profitable. Lots of moats with few large players and significant barriers to entry. Current issue: US government getting more involved in business - legislating changes to debit payment process = 20% of Visa's business.

For a summary of current business and issues, listen to Q1 results conference call. Bottom line, current CEO feels current regulatory issues are manageable (definitely not happy about things). They continue to buy back lots of stock as they view it as cheap. I expect lots of volatility; looks to me to have nice upside once near term regulatory issues in US are finalized in Congress and Visa communicates plans to maintain growth (they look to have lots of opportunities to grow and will likely shift some focus from US to international). They just reported great Q1 results and are guiding for earnings per share growth in excess of 20% for the coming year.

http://seekingalpha.com/article/250422-visa-ceo-discusses-q1-2011-earnings-call-transcript?source=qp_transcript (http://seekingalpha.com/article/250422-visa-ceo-discusses-q1-2011-earnings-call-transcript?source=qp_transcript)

Current stock price = $71.63
2010 Earnings (Sept 30 fiscal YE) = $3.91
RBC 2011 Est Earnings = $4.85 = 24% growth vs PY; PE = 14.8
RBC 2012 Est Earnings = $5.80 = 20% growth; PE = 12.4
Title: Re: V - Visa
Post by: prunes on February 03, 2011, 05:02:51 PM
I like this industry potential for global expansion. Not sure how you'd evaluate among the big three though. Why Visa and not MasterCard or Amex? Which has the best international growth prospects?
Title: Re: V - Visa
Post by: ericd1 on February 03, 2011, 05:18:29 PM
I like the business model and believe there's an opportunity here, but I have some concerns. First and foremost a disrupting technology and second government regulations. There are credit card like payment concepts floating around silicon valley that use your cellphone and a payment system outside of the majors. Paypal, google checkout, etc who knows what's coming next. We haven't seen the end of government regs either. For now this one is in my too hard pile even though I like Visa

Look at this article - last couple of paras

http://www.businessinsider.com/huge-youll-finally-be-able-to-use-your-iphone-5-and-ipad-2-as-wallets-2011-1
Title: Re: V - Visa
Post by: Viking on February 03, 2011, 08:26:07 PM
ericd1, I agree there are risks. However, I think the speed at which the new technologies hit the mass market will be slower and the moats of the incumbents are misunderstood (and the incumbents are in the best position to partner with any new players). Thanks for posting the article... if you read the first few comments at the bottom of it you also get some counter points that are interesting.

Also, as Mastercard said in their recent release 75% of global transactions are still cash or cheques and is incredibly costly (much more costly than electronic payments). My read is the global pie for electronic payment is growing so fast (and the large companies have such strong moats) that large companies like Visa should continue to grow at a very fast rate for the next few years (even given the risks). This was the sense I got from the Visa CEO when questioned on the Q1 conference call about all the concern regarding potential changes to the debit payment system in the US; they will simply adjust their contracts to re-coup and lost revenue or (with banks), shift consumers into alternative payment systems and shift resources into more profitable endeavours - work, but manageable. Visa also has been working on mobile payment for quite some time and are prepared; the CEO commented (if I remember correctly) that we likely will not see it in a big way in the next year as much needs to be in place to facilitate this transaction (and retailers do not have the $ to keep buying new technology that may quickly become outdated as standards change).

As I continue reading up on the major players in the industry I am coming to better appreciate the size of the moat they have in place. As to picking among the major players I have graviated to Visa as they appear to be the market leader and the cheapest today. I love how much this market is going to grow the next few years.
Title: Re: V - Visa
Post by: Viking on February 04, 2011, 12:31:19 PM
Here is another (bullish) perspective on Visa & Mastercard that sums recent results and current issues (i.e. Durbin) pretty well: http://seekingalpha.com/article/250941-mastercard-and-visa-profit-on-stronger-consumer-spending?source=yahoo (http://seekingalpha.com/article/250941-mastercard-and-visa-profit-on-stronger-consumer-spending?source=yahoo)
Title: Re: V - Visa
Post by: biaggio on February 04, 2011, 02:32:23 PM
Great company.
Seems to be fully valued to me.
Margin of safety=quality of the business + sustainable competitive advantage(moat). No MOS as far as price your paying.

Just playing with the DCf/Fair Value Calculator  on gurufocus which may be naive... I calculate -If you get 8% growth per year in earnings over the next 20 years you'll get at 10% per year yield which is fine (normally I think we would want 15-20% return on investment-that's why I am thinking it is fairly valued.)
Title: US Fed fee cap - higher than expected
Post by: tengen on June 29, 2011, 05:02:58 PM
The Fed has capped the interchange fee for debit cards at $0.21 + .05% per transaction, which is well above the original $0.12 proposal. Analysts were expecting the Fed to raise the cap to $0.20 so this is a surprise to the upside (unless you are a merchant who has to pay the fee, of course).

V shares closed up 15%, MA up 11%.

http://finance.yahoo.com/news/Fed-orders-banks-to-lower-apf-2784073239.html
Title: Re: V - Visa
Post by: Liberty on June 29, 2011, 07:01:11 PM
Any idea why AXP only went up 2.58%? (I mean, is it Mr. Market just being weird, or is it because AXP makes a smaller % of it's profits from these fees?)
Title: Re: V - Visa
Post by: rranjan on June 29, 2011, 08:02:24 PM
Any idea why AXP only went up 2.58%? (I mean, is it Mr. Market just being weird, or is it because AXP makes a smaller % of it's profits from these fees?)

Much smaller.
Title: Re: V - Visa
Post by: given2invest on June 29, 2011, 08:24:44 PM
When was the last time you've seen am American Express debit card?

Rare.

Title: Re: V - Visa
Post by: Liberty on June 29, 2011, 08:41:18 PM
When was the last time you've seen am American Express debit card?

Rare.

My bad. I wasn't following this story very closely (I don't own any of these stocks, except maybe indirectly through BRK) and didn't notice that this was about debit card fees and not credit card fees.
Title: Re: V - Visa
Post by: jeyfox on August 01, 2015, 03:44:34 PM
Hi,
I was a shareholder of this company and thought it would be interesting to keep following it even if the price is not great.
With the 3rd quarter results, V managed to get some double digit increase in revenus. It is quite impressive yet the P/FCF is at 31! Great company just too expensive in my opinion.
At the end of october, we will have some news concerning their discussions to buy back Visa Europe.
There was an article in the french press which gave some numbers:
- an amount which was given (and represents the higher end)  was 17,8 billion euros which represents 13,7 times Visa Europe revenues or 50 times the 2014 FCF of Visa Europe…
- another price (lower end) was more towards 25 times the FCF.
We will see.
Cheers!
Jeremy
No holdings in Visa.
Title: Re: V - Visa
Post by: Liberty on October 29, 2015, 10:33:53 AM
http://www.wsj.com/articles/visa-nears-22-billion-deal-to-buy-european-counterpart-1446136455

Visa Nears $22 Billion Deal to Buy European Counterpart
Title: Re: V - Visa
Post by: Liberty on November 02, 2015, 05:50:59 AM
23.3 it is:

http://www.nytimes.com/2015/11/03/business/dealbook/visa-to-buy-back-former-europe-unit-for-up-to-23-3-billion.html
Title: Re: V - Visa
Post by: Phaceliacapital on November 02, 2015, 05:51:49 AM
I read that it's around 214 mn in profits... How do you justify this?
Title: Re: V - Visa
Post by: vinod1 on November 02, 2015, 06:15:15 AM
I read that it's around 214 mn in profits... How do you justify this?

Not justifying the price paid, but the profits are below what they would be if Visa Europe has been completely independent entity. They are owned by the banks and so limited in their ability to hike up the fees for network usage.

The price to be paid is tied to Visa's own valuation. So what Visa is paying is based on Visa's forward PE multiple applied to adjusted forward earnings of Visa Europe.

Vinod
Title: Re: V - Visa
Post by: merkhet on November 02, 2015, 06:15:37 AM
Page 55, http://annualreport.visaeurope.com/files/pdf/visa_europe_annual_report_2014_complete.pdf

My guess is Visa Europe's revenue is a little above to €1.4 billion this year. On 17% net margins, the 2015 net earnings should be around €238 million in profits.

The big difference is in the fact that:
Title: Re: V - Visa
Post by: Phaceliacapital on November 02, 2015, 07:29:11 AM
Ok but 43% on 1.4 bn is still +/- 36x earnings, not a lot of margin of safety for execution..
Title: Re: V - Visa
Post by: merkhet on November 02, 2015, 09:33:56 AM
Ok but 43% on 1.4 bn is still +/- 36x earnings, not a lot of margin of safety for execution..

Yes, but the contribution margin is significantly higher than 43%. (Check out the impact on operating margins and/or operating income for every 10% increase in revenues at Visa U.S.)

In other words, I think that Visa Europe is duplicating a lot of expenses that are already incurred at Visa U.S. And then add some pricing increase on the top line.

I'm not saying it's a home run type of investment for Visa. I'm just saying it's not as bad as paying 100x earnings. :)
Title: Re: V - Visa
Post by: orthopa on November 02, 2015, 09:39:27 AM
Looks like V didnt buy back any stock in Q4. They are usually quite smart about the price they pay during the Q when they buyback. Not saying the price is too high and to sell but management seems its best to hold off. Added another 5B so looks like ~7.5B left to buyback.

Hopefully the price comes in some. Will allow more buyback and Id like to get  a little more under ~20 times.

Agree that fees can be raised, not cheap but it always seems like these deals happen near lofty valuations such as now. Euro is the weakest its been in years so that helps price some.
Title: Re: V - Visa
Post by: Liberty on January 28, 2016, 01:10:17 PM
http://investor.visa.com/news/news-details/2016/Visa-Inc-Reports-Fiscal-First-Quarter-2016-Results/default.aspx
Title: Re: V - Visa
Post by: Liberty on June 30, 2016, 10:04:12 AM
More legal troubles for V and MA...

http://www.theglobeandmail.com/report-on-business/international-business/us-business/visa-mastercard-antitrust-settlement-with-merchants-is-voided/article30700276/

Here's the decision:

http://www.ca2.uscourts.gov/decisions/isysquery/3b121c10-fbe8-4ced-8292-dc898f0f48a9/1/doc/12-4671_complete_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/3b121c10-fbe8-4ced-8292-dc898f0f48a9/1/hilite/
Title: Re: V - Visa
Post by: orthopa on July 01, 2016, 06:07:43 PM
Per Barrons


Evercore ISI

Thursday morning, The United States Court of Appeals for the Second Circuit vacated and reversed the approval of the December 2013 settlement of U.S. credit-card interchange litigation between Visa and MasterCard and a class of merchants in the Eastern District Court of New York and remanded the case to be reheard by the same Court.

The U.S. Court of Appeals concluded that the class plaintiffs or the merchants were inadequately represented in violation of Rule 23 (a)(4) and the Due Process Clause.

Based on our preliminary assessment, the negative financial impact on Visa (ticker: V) and MasterCard ( MA ) should be manageable, although it is too early to quantify. While the rehearing of this case could take years, Visa is indemnified against financial liability in merchant interchange litigation under the Retrospective Responsibility Plan (RRP) by its pre-initial-public-offering owner banks. MasterCard has no such indemnification by its pre-IPO banks. However, as of March 31, MasterCard’s balance sheet carried $2.875 billion of cash, net of debt. Second, the rehearing of this case will focus on Visa’s and MasterCard’s business practices. Even if the merchants win concessions, consumers ultimately will determine how credit and debit cards are used.

The Court of Appeals highlighted three of Visa’s and MasterCard’s business practices: 1) the setting of the default interchange fee, paid by merchants to Visa and MasterCard-card issuing banks; 2) the “honor-all-cards” rule requiring merchants who take at least one of Visa’s and MasterCard’s cards to take all of them; and 3) no “surcharging” rules, since separately, under a 2011 consent decree with the Department of Justice, Visa and MasterCard permitted merchants to discount transactions and to steer consumers away from credit-card use.

There were two classes of merchant plaintiffs in the Dec. 13, 2013 settlement. The first class, the “opt-out” class, or Rule 23 (b) (3), received monetary damages of $7.25 billion, to which Visa set aside $4.4 billion from its restricted cash escrow account and to which MasterCard set aside $790 million. The second class, the “non-opt-out” class, or Rule 23 (b)(2), received injunctive relief, such as the ability to surcharge both Visa and MasterCards at the brand and product level.

The Court of Appeals took issue with injunctive relief to the “non-opt-out” class terminating on July 20, 2021 whereas the merchants released Visa and MasterCard indefinitely from certain types of future potential claims.

Our biggest concern arising out of the Court of Appeals decision is that the retrying of such merchant interchange litigation could take years, creating an overhang on Visa and MasterCard stock. We are less concerned that the potential settlement will be highly material to Visa or MasterCard’s earnings growth outlook. With Visa stock down 3.4% today and MasterCard 4.4%, much of this is already discounted, we believe.

On Aug. 11, the District Court will hold a conference with all parties involved to discuss next steps in the litigation.

MasterCard trades at 21.2 times, and Visa, 21.8 times, our fiscal 2017 earnings-per-share estimates, respectively.

-- David Togut
-- Rayna Kumar
-- Anthony Cyganovich

I personally would welcome a prolonged overhang while materially not affecting the business. Id like to buy more of these businesses at a sub 20 PE.
Title: Re: V - Visa
Post by: Liberty on July 06, 2016, 09:25:05 AM
Morningstar concludes:

http://news.morningstar.com/articlenet/article.aspx?id=758906&SR=Yahoo

Quote
Overall, we think these items support our thesis that merchants are exercising more power than they have in the past. That said, the handful of high-margin basis points retained by Visa and MasterCard pales in comparison with the larger fees paid to merchant acquirers and card issuers. Furthermore, security technology is changing fast, and the signature versus PIN debate may soon be obsolete. Regulatory and structural changes (network initial public offerings and the Visa/Visa Europe merger) have already increased competition considerably since the initial bouts of litigation more than a decade ago. Finally, we think the growing value of the data gathered by the networks offers upside potential that offsets the risks of further regulatory and legal actions. We are maintaining our fair value estimates for Visa and MasterCard.
Title: Re: V - Visa
Post by: Liberty on July 25, 2016, 09:23:38 AM
Interesting piece about the V-PYPL deal:

http://www.pymnts.com/news/payments-innovation/2016/how-will-visa-paypal-shape-the-future-of-payments/
Title: Re: V - Visa
Post by: notorious546 on September 06, 2016, 10:48:04 AM
https://sumzero.com/headlines/business_services/V/331-visa-is-everything-you-want-a-stock-to-be
Title: Re: V - Visa
Post by: Liberty on October 17, 2016, 04:09:23 PM
Surprise! Visa CEO resigned.

http://www.wsj.com/articles/visa-ceo-charles-scharf-is-stepping-down-1476735288
Title: Re: V - Visa
Post by: Phaceliacapital on October 18, 2016, 05:43:13 AM
Do you think there's something more behind this story?
Title: Re: V - Visa
Post by: Liberty on October 18, 2016, 07:06:00 AM
Do you think there's something more behind this story?

No idea.
Title: Re: V - Visa
Post by: Liberty on October 24, 2016, 03:05:21 PM
Visa fiscal Q4:

http://investor.visa.com/news/news-details/2016/Visa-Inc-Reports-Strong-Fiscal-Fourth-Quarter-and-Full-Year-2016-Results/default.aspx

Quote
GAAP quarterly net income of $1.9 billion or $0.79 per share, including special items

GAAP full-year 2016 net income was $6.0 billion or $2.48 per share, including special items

Adjusted quarterly net income of $1.9 billion or $0.78 per share, excluding special items

Adjusted full-year 2016 net income of $6.9 billion or $2.84 per share, excluding special items
Title: Re: V - Visa
Post by: orthopa on November 05, 2016, 12:18:57 PM
I keep stalking this for an entry but as it always seems the market never offers up a great price. Trying not to talk myself into a purchase but is paying a low to mid 20's multiple for a business growing mid teens that foolish? Definitely a great business at a fair price.

It remains to be seen what China will do for the company but that is a nice kicker for paying a low 20's PE.

I know block chain has been a concern for some but I just remember reading that V was testing their own blockchain technology. Is that still a viable threat?Anyone feel like throwing up some thoughts?
Title: Re: V - Visa
Post by: cherzeca on November 07, 2016, 10:04:05 AM
"I know block chain has been a concern for some but I just remember reading that V was testing their own blockchain technology. Is that still a viable threat?Anyone feel like throwing up some thoughts?"

i think blockchain will be incorporated by all payments processors in some fashion, though how deeply and thoroughly i have no clue.  since V is also looking at it, my best guess is the V will be able to improve its operations by using it as well, and rely upon its massive scale to maintain its moat (which it shares with MC).  i dont see blockchain as a killer app that renders V's moat penetrable.

so i am long V on theory that it is a great business and the market will not give you a cheaper entry than now unless market as a whole nosedives...
Title: Re: V - Visa
Post by: Alex.N.B on November 07, 2016, 02:32:18 PM
I don't think that paying 20x for a business growing in the mid-teens is foolish.. companies like Starbucks are trading in the 30x area for the same growth...and I would argue greater risk. The multiple seems fair when I think about the sustainability of a business like Mastercard/Visa and growth opportunity... these companies build trust with their clients over time and it's hard for new entrants to compete I would think.

Also what do you guys think are the major risks for these two companies here? (I think Amex is a little different so not including)

Title: Re: V - Visa
Post by: TheAiGuy on November 07, 2016, 03:12:19 PM
I started buying V in february and then continued with MA thought the summer, both maybe ~7% below where they are now. It's worth keeping in mind that V and MA have little need for capital to fuel growth, and even less need for equity capital, which makes them much more valuable than they would otherwise be. Might also want to keep in mind that gross volumes keep up with inflation quite naturally, such that V revenue should match inflation ex-Growth without price hikes.

I would say that the major risks are competition market by market, so things regulation in Russia and China, ChaseNet and Amex in the US, Paypal over the internet, etc. As for blockchain as a competitive threat, blockchain is a technology and technologies are not threats, business models are (roughly speaking). There's no reason that Visa couldn't implement blockchain and they would be able to leverage their preexisting network as a competitive advantage to spur the technologies use, much as they have been able to do so with tokenization.

A different business model, which might involve a clever use of technology, could disintermediate Visa. For this to happen, one might presuppose the current intermediation between financial institutions is not valuable. Personally, I find this dubious, which means that I would expect a new entrant to intermediate between financial institutions, either by competing head-on or by taking a new niche à la PayPal.  The alternate competitive threat is something that completely disintermediates financial institutions during transactions all together. I think this was the initial goal of bitcoin -- but that's a type of ideological naiveté.
Title: Re: V - Visa
Post by: orthopa on November 08, 2016, 09:47:46 AM
Good points above.

Im not smart enough to try to predict the technology that displaces V so at this point don't see the since in wasting time worrying about it. I guess I have a lot of faith in managements ability to recognize such threats and act accordingly as they have thus far.

China looks promising but looks they have a big hill to climb with Union Pay having a near monopoly. That's a nice kicker going forward even if things marginally do well in China.

With ~85% of the world still transacting in cash the runway looks long and with very little cap ex needs all that cash flow can be plowed back into share repurchases or acquisitions. At some point shareholders will see a huge increase in the div too but right now 14-18% compounded growth isnt too shabby either.
Title: Re: V - Visa
Post by: DooDiligence on November 08, 2016, 09:12:03 PM
Im not smart enough to try to predict the technology that displaces V so at this point don't see the since in wasting time worrying about it. I guess I have a lot of faith in managements ability to recognize such threats and act accordingly as they have thus far.

Me either...

Thank God Musk is busy with electric cars & rockets!
Title: Re: V - Visa
Post by: orthopa on November 14, 2016, 05:29:34 PM
Well was watching for a place to add to existing holding and nibbled some today. Down at one point nearly 5%. Cant find any news of a new lawsuit or problem otherwise.

Interest rates are rising. Maybe investors afraid that rates will decrease spending with Mastercard down a bunch too?

Trading ~20ish flat on a forward PE basis. With interest rates rising maybe a fairer multiple is 17-18 PE? Im happy to buy down here if it continues to bleed.  Good for buyback too as managment has been forced to buy a steadily upward marching stock over the years.
Title: Re: V - Visa
Post by: Liberty on November 14, 2016, 05:56:47 PM
Well was watching for a place to add to existing holding and nibbled some today. Down at one point nearly 5%. Cant find any news of a new lawsuit or problem otherwise.

Interest rates are rising. Maybe investors afraid that rates will decrease spending with Mastercard down a bunch too?

Trading ~20ish flat on a forward PE basis. With interest rates rising maybe a fairer multiple is 17-18 PE? Im happy to buy down here if it continues to bleed.  Good for buyback too as managment has been forced to buy a steadily upward marching stock over the years.

Looks like it might be down because of the general rotation into rate sensitive stocks and into more GDP sensitive stocks.
Title: Re: V - Visa
Post by: Liberty on February 02, 2017, 03:28:26 PM
Visa Q4:

http://investor.visa.com/news/news-details/2017/Visa-Inc-Reports-Strong-Fiscal-First-Quarter-2017-Results/default.aspx

Quote
GAAP net income of $2.1 billion or $0.86 per share, an increase of 7% and 7%, respectively
Adjusted net income and earnings per share growth of 23% and 23%, respectively
Net operating revenue of $4.5 billion, an increase of 25%
Title: Re: V - Visa
Post by: Liberty on April 20, 2017, 01:58:32 PM
Fiscal Q2:

http://s1.q4cdn.com/050606653/files/doc_downloads/2017/Q2/Visa-Inc.-Q2-2017-Financial-Results.pdf

Quote
Fiscal Second Quarter 2017 Key Highlights:
• GAAP net income of $430 million or $0.18 per share including special items related to the legal entity reorganization of Visa Europe
• Adjusted net income of $2.1 billion or $0.86 per share excluding special items related to the legal entity reorganization of Visa Europe
• Net operating revenue of $4.5 billion, an increase of 23%, driven by inclusion of Europe and continued growth in payments volume, cross-border volume and processed transactions
• Payments volume growth, on a constant dollar basis, was 37% over the prior year at $1.7 trillion
• Cross-border volume growth, on a constant dollar basis, was 132% or 11% inclusive of Europe in prior year
results
• Total Visa processed transactions were 26.3 billion, a 42% increase over the prior year, or 12% growth inclusive
of Europe in prior year results
• Newly-formed Visa Foundation funded with contribution of $192 million
• Returned approximately $2.1 billion of capital to shareholders in the form of share repurchases and dividends
• Board authorized a new $5.0 billion class A common stock share repurchase program
Title: Re: V - Visa
Post by: Liberty on May 18, 2017, 12:53:22 PM
For those interested in the payment industry, here's a new presentation (361 pages!) by Value Seeker on Twitter:

http://valueseekerinvestments.blogspot.ca/2017/05/payments-industry-overview-analysis-of.html

Haven't had a chance to read it yet since it just came out, but he's a good analyst so I expect it to be quite informative.
Title: Re: V - Visa
Post by: SlowAppreciation on May 18, 2017, 01:15:21 PM
For those interested in the payment industry, here's a new presentation (361 pages!) by Value Seeker on Twitter:

http://valueseekerinvestments.blogspot.ca/2017/05/payments-industry-overview-analysis-of.html

Haven't had a chance to read it yet since it just came out, but he's a good analyst so I expect it to be quite informative.

Thank you. Have been searching for something like this for some time.
Title: Re: V - Visa
Post by: SlowAppreciation on July 12, 2017, 05:29:16 AM
https://www.wsj.com/articles/visa-takes-war-on-cash-to-restaurants-1499853601
Title: Re: V - Visa
Post by: DW on July 12, 2017, 07:25:13 AM
https://www.wsj.com/articles/visa-takes-war-on-cash-to-restaurants-1499853601

As a Visa shareholder, I love the idea, but I can't see all that many merchants taking them up on the idea. I have to think some patrons would be turned off by the idea and might take their business elsewhere. A small establishment likely can't afford to lose too many customers.

Title: Re: V - Visa
Post by: DTEJD1997 on July 13, 2017, 12:13:24 PM
Hey all:

Not be able to take cash?  How would that be a legally enforceable agreement?  What if a customer comes in orders food and then offers to pay with cash?  The restaurant won't take it and then calls the police?  I would pay KASH to see how that plays out!  How amused will the officers will be with that call.

On USA currency it says "This note is legal tender for all debts, public and private". 

Then, what about waiters & waitresses who prefer to be paid in cash?  Will they go to competitors that still accept cash?

I would also think that some restaurant owners LOVE to get cash...for a variety of reasons.

I will almost NEVER pay with a credit card in restaurants, as I suspect a lot of the fraud problems I've had have resulted from these type of transactions.

Then, what about erroneous network refusals?  I've sometimes gone across state borders and my card is automatically declined.  The "AI" networks detecting fraud are actually INCREDIBLY stupid.

For example, I went to Sam's club in Toledo OH, which is maybe 15 minutes into Ohio and maybe 1 hour drive from Detroit.  The network should know that it is:

A). In close geographic proximity
B). I used to live in Toledo
C). I am a member of Sam's club

They have all of this information available...but don't/can't figure it out.  Thankfully, I had cash to back up my purchase.

I think this won't work or will backfire for Visa.
Title: Re: V - Visa
Post by: SlowAppreciation on July 17, 2017, 05:52:45 PM
https://www.nytimes.com/2017/07/16/business/china-cash-smartphone-payments.html?_r=0
Title: Re: V - Visa
Post by: Jurgis on July 17, 2017, 08:50:37 PM
I went to Peru in June. Peru is one of the most-cash countries in the world.

Interestingly, some shops may not take Visa. Some may not take MC. I never asked about Amex. I saw a lot of UnionPay ( https://en.wikipedia.org/wiki/China_UnionPay ) signs though.

So V/MA may have won developed countries ex-China. But developing countries - especially touristy ones - are quite open to UnionPay and may end up being a battleground.

Aside: before reading UnionPay wiki article I did not know about DFS-UnionPay partnership. I wonder how much Discover benefits from it and whether this makes Discover from also-ran into a valuable acquisition target.
Title: Re: V - Visa
Post by: DooDiligence on July 18, 2017, 09:33:22 AM
I went to Peru in June. Peru is one of the most-cash countries in the world.

Interestingly, some shops may not take Visa. Some may not take MC. I never asked about Amex. I saw a lot of UnionPay ( https://en.wikipedia.org/wiki/China_UnionPay ) signs though.

So V/MA may have won developed countries ex-China. But developing countries - especially touristy ones - are quite open to UnionPay and may end up being a battleground.

Aside: before reading UnionPay wiki article I did not know about DFS-UnionPay partnership. I wonder how much Discover benefits from it and whether this makes Discover from also-ran into a valuable acquisition target.

Did you do Machu Picchu?

There should be a travel thread (gotta be a lot of globe trotters with stories & photos...)

The DFS angle might be something.
Title: Re: V - Visa
Post by: Liberty on July 20, 2017, 01:31:07 PM
Fiscal Q3:

http://s1.q4cdn.com/050606653/files/doc_financials/2017/Q3/Visa-Inc.-Q3-2017-Financial-Results-Conference-Call-Presentation.pdf

http://s1.q4cdn.com/050606653/files/doc_financials/2017/Q3/Visa-Inc.-Q3-2017-Financial-Results.pdf

Quote
Fiscal Third Quarter 2017 Key Highlights:
• GAAP net income of $2.1 billion or $0.86 per share
• Net operating revenue of $4.6 billion, an increase of 26%, driven by inclusion of Europe and continued growth in payments volume, cross-border volume and processed transactions
• Payments volume growth, on a constant dollar basis, was 38% over the prior year at $1.9 trillion
• Cross-border volume growth, on a constant dollar basis, was 147% or 11% inclusive of Europe in prior year results
• Total Visa processed transactions were 28.5 billion, a 44% increase over the prior year, or 13% growth inclusive of Europe in prior year results
• Returned approximately $2.1 billion of capital to shareholders in the form of share repurchases and dividends
Title: Re: V - Visa
Post by: atbed on July 20, 2017, 02:47:29 PM
Fiscal Q3:

http://s1.q4cdn.com/050606653/files/doc_financials/2017/Q3/Visa-Inc.-Q3-2017-Financial-Results-Conference-Call-Presentation.pdf

http://s1.q4cdn.com/050606653/files/doc_financials/2017/Q3/Visa-Inc.-Q3-2017-Financial-Results.pdf

Quote
Fiscal Third Quarter 2017 Key Highlights:
• GAAP net income of $2.1 billion or $0.86 per share
• Net operating revenue of $4.6 billion, an increase of 26%, driven by inclusion of Europe and continued growth in payments volume, cross-border volume and processed transactions
• Payments volume growth, on a constant dollar basis, was 38% over the prior year at $1.9 trillion
• Cross-border volume growth, on a constant dollar basis, was 147% or 11% inclusive of Europe in prior year results
• Total Visa processed transactions were 28.5 billion, a 44% increase over the prior year, or 13% growth inclusive of Europe in prior year results
• Returned approximately $2.1 billion of capital to shareholders in the form of share repurchases and dividends

More China news. Could be less than 2 years out

Edit: Wrong link was pasted. See post below. Thanks Liberty
Title: Re: V - Visa
Post by: Liberty on July 20, 2017, 06:39:28 PM
Did you paste the wrong link, atbed?

Edit: Guessing this is the story: https://www.theglobeandmail.com/report-on-business/us-bank-card-companies-to-seek-licenses-to-operate-in-china-in-months/article35748975/
Title: Re: V - Visa
Post by: giofranchi on July 28, 2017, 08:44:10 AM
I've sold TVR and bought V.
Just wanted to decrease my portfolio's exposure to the insurance sector.
For what I can see V will benefit from secular tailwinds at least for the next few years. The exact opposite is true for insurance as interest rates slowly rise.
And V in the payment industry seems to be the lead dog.

Longer term Munger of course is right, and technology developments make it very difficult to know who will win in the payment industry.

Cheers,

Gio
Title: Re: V - Visa
Post by: Liberty on September 28, 2017, 10:41:11 AM
Post on V and MA (sub required):

https://www.scuttleblurb.com/visa-v-mastercard-ma-expanding-the-rails/
Title: Re: V - Visa
Post by: Liberty on October 25, 2017, 05:33:39 AM
Visa Q3:

http://s1.q4cdn.com/050606653/files/doc_financials/2017/Q4/Visa-Inc.-Q4-and-FY-2017-Financial-Results.pdf

Quote
Fiscal Fourth Quarter:
• GAAP net income of $2.1 billion or $0.90 per share
• Net operating revenues of $4.9 billion, an increase of 14%, driven by continued growth in payments volume, cross- border volume and processed transactions
• Payments volume growth, on a constant dollar basis and excluding Europe co-badge volume, was 10% over the prior year
• Cross-border volume growth, on a constant dollar basis, was 10% over the prior year
• Total Visa processed transactions increased 13% over the prior year
• Returned approximately $2.1 billion of capital to shareholders in the form of share repurchases and dividends
Fiscal Full Year:
• GAAP 2017 net income of $6.7 billion or $2.80 per share and adjusted full-year net income of $8.3 billion or $3.48 per share
• 2017 net operating revenues of $18.4 billion, an increase of 22%, driven by inclusion of Visa Europe and continued growth in payments volume, cross-border volume and processed transactions
• Payments volume growth, on a constant dollar basis and excluding Europe co-badge volume, was 30% over the prior year, or 11% inclusive of Visa Europe in prior year's results
• Cross-border volume growth, on a constant dollar basis, was 80% or 11% inclusive of Visa Europe in prior year's results
• Total Visa processed transactions increased 34% over the prior year, or 13% inclusive of Visa Europe in prior year's results
• Returned approximately $8.5 billion of capital to shareholders in the form of share repurchases and dividends
Title: Re: V - Visa
Post by: Jerry Capital on November 16, 2017, 08:43:07 AM
Love this

Visa as an inflation hedge

"If you look at the last five years, I think our payment volume grew roughly 10% and global – there are two drivers of it. One is growth of global nominal GDP. The keyword is nominal because consumer expenditures typically move with nominal GDP and the other was penetration of cash. If you get double-digit growth when you went through probably one of the weakest periods of global nominal GDP growth because not only did we have weak rail growth, but we had almost no inflation. You can imagine how we were growing 10% with actually one engine, which is nominal GDP, not functioning. And the only rail engine that was functioning was penetration of cash."

Weak competitor called cash

"If anything, if you think the future is somewhat better growth, that should help. And I don't see any sign of slowdown in the ability to digitize cash. I think the best sort of description an analyst had coming out of our Investor Day was something like I like Visa because they have weak competitor called cash. I mean, the wonderful thing about this is that governments now have embraced the idea that cash needs to go because it creates corruption, it creates inefficiency. It just doesn't fit their own views of what the future of their countries are. That's a new phenomenon."

https://seekingalpha.com/article/4124989-visas-v-management-presents-ubs-global-technology-conference-transcript?part=single
Title: Re: V - Visa
Post by: Liberty on February 01, 2018, 01:20:12 PM
Q4: https://s1.q4cdn.com/050606653/files/doc_financials/2018/Q1/Visa-Inc.-Q1-2018-Financial-Results.pdf

https://s1.q4cdn.com/050606653/files/doc_financials/2018/Q1/Visa-Inc.-Q1-2018-Financial-Results-Conference-Call-Presentation.pdf

EPS +25%
Title: Re: V - Visa
Post by: Liberty on April 25, 2018, 01:47:17 PM
Q1:

https://s1.q4cdn.com/050606653/files/doc_financials/2018/Q2/Visa-Inc.-Q2-2018-Financial-Results.pdf
Title: Re: V - Visa
Post by: Liberty on August 12, 2018, 04:43:53 PM
https://www.bloomberg.com/news/articles/2018-08-09/visa-mastercard-amex-agree-to-trim-interchange-fees-in-canada
Title: Re: V - Visa
Post by: Liberty on September 07, 2018, 10:52:24 AM
Write-up on Visa and MasterCard (subscription required):

https://www.scuttleblurb.com/v_ma2/
Title: Re: V - Visa
Post by: Pauly on September 07, 2018, 11:08:33 AM
Write-up on Visa and MasterCard (subscription required):

https://www.scuttleblurb.com/v_ma2/

Is there anything useful there, Liberty? On the Visa write-up and the site in general?
Title: Re: V - Visa
Post by: Liberty on September 07, 2018, 11:20:23 AM
Write-up on Visa and MasterCard (subscription required):

https://www.scuttleblurb.com/v_ma2/

Is there anything useful there, Liberty? On the Visa write-up and the site in general?

The writing is very good and very in-depth, and the author is very good at succinctly explaining very complex industry dynamics, so I quite like it. There are many sample posts available freely on the site if you want to get an idea:

https://www.scuttleblurb.com/category/sampleposts/

f.ex:

https://www.scuttleblurb.com/vrsk/

https://www.scuttleblurb.com/mco/

https://www.scuttleblurb.com/inxn-eqix/

https://www.scuttleblurb.com/cprt_kar/
Title: Re: V - Visa
Post by: chrispy on September 08, 2018, 11:56:50 AM
Thanks for the share. Very informative.

I sold V and MA several months ago for a different idea that obviously has performed worse... I couldn't handle the near 40PE with low single digits growth. The network effects are amazing with V and MA but do you guys/gals think that the price has appreciated past the value of the current earnings?
Title: Re: V - Visa
Post by: Liberty on September 08, 2018, 12:17:33 PM
Thanks for the share. Very informative.

I sold V and MA several months ago for a different idea that obviously has performed worse... I couldn't handle the near 40PE with low single digits growth. The network effects are amazing with V and MA but do you guys/gals think that the price has appreciated past the value of the current earnings?

On V, Visa Europe is still underearning...
Title: Re: V - Visa
Post by: Liberty on September 18, 2018, 08:42:16 AM
https://www.bloomberg.com/news/articles/2018-09-18/visa-mastercard-reach-6-2-billion-settlement-over-swipe-fees


Quote
Visa Inc. and Mastercard Inc. agreed to pay as much as $6.2 billion to end a long-running price-fixing case brought by merchants over card fees, the largest-ever class action settlement of an antitrust case.
Title: Re: V - Visa
Post by: gary17 on September 18, 2018, 01:45:17 PM
Thanks -

for those following V and MA closely, i was looking at their cash flow statements recently and noticed that V has a large non-cash current item called "Client incentives" which is a big negative item under the change in working capital item.  I don't see the same thing for MA.  Can someone help me understand why this is, or perhaps it is there for MA as well , but I missed it?

THanks
Title: Re: V - Visa
Post by: Schwab711 on September 18, 2018, 02:33:39 PM
Thanks -

for those following V and MA closely, i was looking at their cash flow statements recently and noticed that V has a large non-cash current item called "Client incentives" which is a big negative item under the change in working capital item.  I don't see the same thing for MA.  Can someone help me understand why this is, or perhaps it is there for MA as well , but I missed it?

THanks

From Visa's 10-k:
Client incentives consist of long-term contracts with financial institution clients, merchants and strategic partners for various programs designed to build payments volume, increase Visa product acceptance, win merchant routing transactions over our network and drive innovation. These incentives are primarily accounted for as reductions to operating revenues.

Mastercard calls them rebates (like Visa used to). V just breaks out the detail of the accrual vs cash for incentives in the CFS whereas MA doesn't.
Title: Re: V - Visa
Post by: gary17 on October 26, 2018, 08:57:01 PM
I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 
i'm noticing alipay & wechat pay more and more now, even in vancouver. 
Gary
Title: Re: V - Visa
Post by: vinod1 on October 27, 2018, 06:00:45 AM
I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 
i'm noticing alipay & wechat pay more and more now, even in vancouver. 
Gary

Yes it is a threat long term that needs to be watched, just like you do for any long term risks for any company, even Berkshire.

That said, the only new company that has succeeded in the past 40 years in payments (payment rails, not something that rides on top of the existing networks like Square) in the US and the rest of the Developed world is Paypal. That is because it solved a particular pain point in online payments.

For consumers in US or in any of the major developed economies, payment networks are well developed and paying using credit cards is not a pain point. Paying using a smartphone is not anymore convenient than paying with a credit card.

That is why Apple pay is such a flop. Who knows how things turn out in future? But, just like you noticed, we would have some indication of any change in competitive dynamics and it would not be overnight.

Right now, I do not see a threat on the immediate horizon.

Vinod
Title: Re: V - Visa
Post by: Saluki on October 28, 2018, 01:32:53 PM
I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 
i'm noticing alipay & wechat pay more and more now, even in vancouver. 
Gary

Yes it is a threat long term that needs to be watched, just like you do for any long term risks for any company, even Berkshire.

That said, the only new company that has succeeded in the past 40 years in payments (payment rails, not something that rides on top of the existing networks like Square) in the US and the rest of the Developed world is Paypal. That is because it solved a particular pain point in online payments.

For consumers in US or in any of the major developed economies, payment networks are well developed and paying using credit cards is not a pain point. Paying using a smartphone is not anymore convenient than paying with a credit card.

That is why Apple pay is such a flop. Who knows how things turn out in future? But, just like you noticed, we would have some indication of any change in competitive dynamics and it would not be overnight.

Right now, I do not see a threat on the immediate horizon.

Vinod

I have been seeing bus and billboard ads in the past month for a mastercard that is linked to your Venmo account.  Swipe like a credit card at any merchant who takes V or MC but it's linked to your bank account through venmo.  I won't say it's a game changer, but the landscape on these payment systems changes like the sand dunes and it's hard to predict with certainty what it will look like in a few years.
Title: Re: V - Visa
Post by: vinod1 on October 28, 2018, 04:26:17 PM
I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 
i'm noticing alipay & wechat pay more and more now, even in vancouver. 
Gary

Yes it is a threat long term that needs to be watched, just like you do for any long term risks for any company, even Berkshire.

That said, the only new company that has succeeded in the past 40 years in payments (payment rails, not something that rides on top of the existing networks like Square) in the US and the rest of the Developed world is Paypal. That is because it solved a particular pain point in online payments.

For consumers in US or in any of the major developed economies, payment networks are well developed and paying using credit cards is not a pain point. Paying using a smartphone is not anymore convenient than paying with a credit card.

That is why Apple pay is such a flop. Who knows how things turn out in future? But, just like you noticed, we would have some indication of any change in competitive dynamics and it would not be overnight.

Right now, I do not see a threat on the immediate horizon.

Vinod

I have been seeing bus and billboard ads in the past month for a mastercard that is linked to your Venmo account.  Swipe like a credit card at any merchant who takes V or MC but it's linked to your bank account through venmo.  I won't say it's a game changer, but the landscape on these payment systems changes like the sand dunes and it's hard to predict with certainty what it will look like in a few years.

One new company in the payments systems that succeeded in the last 40 years, must be really slow moving sand dunes :)

Vinod
Title: Re: V - Visa
Post by: gary17 on October 28, 2018, 08:39:26 PM
I think Apple Pay could have potential to be the next Wepay or Ali pay in the US as people seems to have more 'trust' towards Apple...  a lot of payments via app (for example hailing a Uber) can be apple pay.   what's stopping apple pay from linking directly to someone's debit card and bypass the visa network altogether ?

facebook could be like wepay but they have some 'trust' issue at the moment

Gary
Title: Re: V - Visa
Post by: SlowAppreciation on October 29, 2018, 06:03:38 AM
I think Apple Pay could have potential to be the next Wepay or Ali pay in the US as people seems to have more 'trust' towards Apple...  a lot of payments via app (for example hailing a Uber) can be apple pay.   what's stopping apple pay from linking directly to someone's debit card and bypass the visa network altogether ?

facebook could be like wepay but they have some 'trust' issue at the moment

Gary

Title: Re: V - Visa
Post by: gary17 on October 29, 2018, 10:24:10 AM
I think Apple Pay could have potential to be the next Wepay or Ali pay in the US as people seems to have more 'trust' towards Apple...  a lot of payments via app (for example hailing a Uber) can be apple pay.   what's stopping apple pay from linking directly to someone's debit card and bypass the visa network altogether ?

facebook could be like wepay but they have some 'trust' issue at the moment

Gary

  • Building relationships—one by one—with 14,000 financial institutions in 150+ countries.
  • Building relationships with regulators/govts in each of those countries.
  • Compliance
  • Building technology/infrastructure with 99.99999% uptime and then integrate that with each of the financial institutions
  • establishing rules that all parties involved in transactions can agree to for things like returns, disputed transactions, etc
  • have better fraud detection than the company that's been doing it for 40 years

I don't dispute the above and agree V and MA have tremendous value- but with all these 'facts' why is it that Alipay and Wepay have taken off... they don't have the relationships, the compliance and fraud protection issues to deal with?
Gary
Title: Re: V - Visa
Post by: Liberty on October 29, 2018, 10:31:56 AM
but with all these 'facts' why is it that Alipay and Wepay have taken off... they don't have the relationships, the compliance and fraud protection issues to deal with?
Gary

Because China basically started from nothing and was fairly hostile to foreign companies in this industry, while the rest of the world already has existing payment rails that work well.
Title: Re: V - Visa
Post by: Pauly on October 29, 2018, 01:10:56 PM
but with all these 'facts' why is it that Alipay and Wepay have taken off... they don't have the relationships, the compliance and fraud protection issues to deal with?
Gary

Because China basically started from nothing and was fairly hostile to foreign companies in this industry, while the rest of the world already has existing payment rails that work well.

^This x1000. If you've seen Alipay/Wepay in Vancouver I would bet it's only being used by people with strong links to China. I can't see anyone else trusting their financial information to firms like Alibaba and Tencent. What would be the upside?
Title: Re: V - Visa
Post by: Liberty on December 27, 2018, 06:09:45 AM
Acquisition:

https://www.reuters.com/article/us-earthport-m-a-visa/visa-to-buy-british-payments-firm-earthport-for-about-250-million-idUSKCN1OQ0EC

Quote
Visa is paying 198 million pounds ($250.6 million) to buy Earthport Plc (EPO.L), a British firm that facilitates international transactions for banks and businesses, the U.S.-based payments group said on Thursday. [...]

Earthport says it offers a lower-cost alternative to traditional payments systems by allowing banks and money transfer firms to have a single relationship instead of multiple ties with various payments channels around the world.

For Visa, cross-border payments, or transactions that involve parties in two or more countries, represents a growing business. The volume of such payments rose 10 percent in the 2018 fiscal year, Visa said in October.
Title: Re: V - Visa
Post by: Liberty on January 30, 2019, 03:54:36 PM
Q4:

https://s1.q4cdn.com/050606653/files/doc_financials/2019/q1/Visa-Inc.-Q1-2019-Financial-Results-Presentation.pdf

Quote
Net income of $3.0B or $1.30 per share

Net revenues of $5.5B, an increase of 13%

Adj. EPS +21%

Underlying business drivers remained healthy: continued double-digit growth in payments volume and processed transactions; cross-border growth slowed

Returned $2.9B of capital to shareholders in the form of share repurchases and dividends

The board of directors authorized a new $8.5 billion share repurchase program

Operating margin: 68%

Cash, cash equivalents and investment securities of $15.9 billion

Adjusted free cash flow of $3.1 billion for the fiscal first quarter

Capital expenditures of $157 million during the fiscal first quarter
Title: Re: V - Visa
Post by: Liberty on February 08, 2019, 06:10:06 AM
https://www.reuters.com/article/us-earthport-m-a-visa/visa-boosts-offer-for-earthport-in-battle-with-mastercard-idUSKCN1PX0KW

Quote
Visa sweetened its offer for payment company Earthport Plc to about 247 million pounds ($319.84 million), pushing past rival Mastercard Inc’s earlier bid and setting up a showdown for the assets.

Earthport shares have risen more than five-fold to 38.80 pence since Visa first offered to buy the company.

Earthport, which had backed the Mastercard bid, said it was now recommending that shareholders accept the increased Visa offer.
Title: Re: V - Visa
Post by: Liberty on February 15, 2019, 09:21:10 AM
https://www.reuters.com/article/us-paymentprocessors-fees/visa-mastercard-mull-increasing-fees-for-processing-transactions-wsj-idUSKCN1Q41ME

Quote
Visa Inc and Mastercard Inc, the two biggest U.S. card networks, are preparing to increase certain fees levied on U.S. merchants for processing transactions that will kick in this April, the Wall Street Journal reported on Friday, citing people familiar with the matter.

Some of the changes relate to so-called interchange fees, the report said. Interchange fees are what merchants pay to banks when consumers use a credit or a debit card to make a purchase from their store.

Fees that Mastercard and Visa charge financial institutions, such as banks, for processing card payments on behalf of merchants are also set to increase, the report said.
Title: Re: V - Visa
Post by: AdjustedEarnings on February 18, 2019, 10:47:41 AM
I've got some basic business model questions about V/MA and hoping to hear your responses (on the ones you know the answers to). Thank you in advance.:

A. Are data processing revenues basically the 'fixed' component of each transaction and the service revenue the volume component of the same transaction? Or are they differentiated in any other way? On a related note, why does V report service revenues on a quarter lag?

B. In general, we all know V/MA get paid on GDV and # of transactions. Much of it is from merchants. But does anyone have ideas about how much issuers pay (either gross or net of client incentives)? Are their payments based on cards issued or transactions or volume? Or all three? (I understand it's all the same transaction so it's difficult so separate. I'm trying to use this information to determine the effect of banking consolidation on these players.)

C. How do V/MA share in the economics of co-brands?

D. What do V/MA get paid on transactions on their brand which are NOT processed by them? In such cases, who are some of the other networks processing these transactions? Are there any particular cases where this happens more? E.g. debit v/s credit, or intra-Europe, etc.

E. Where on the CF statement are capitalized client incentives? Because they cannot be seen there, my guess is that these are withheld by issuers in making their payments to V/MA. The revenue presentation is 'net'. So the capitalization in the CF statement is implied via the reduction in net-income v/s the way you'd capitalize anything else (e.g. PP&E). Can someone please confirm?

F. In Europe, is "Scheme" the same as brand? If so, is the Article 8 separation of Scheme and processing is the same as brand v/s processing?

Update: I do understand the cash-flows... meaning, how Visa simply keeps portion of the merchant discount, etc. The questions above are more about understanding "who pays who what and when" from a business/contractual standpoint rather than how the cash flows between parties as a matter of practice.
Title: Re: V - Visa
Post by: SlowAppreciation on February 18, 2019, 12:56:20 PM
I've got some basic business model questions about V/MA and hoping to hear your responses (on the ones you know the answers to). Thank you in advance.:

A. Are data processing revenues basically the 'fixed' component of each transaction and the service revenue the volume component of the same transaction? Or are they differentiated in any other way? On a related note, why does V report service revenues on a quarter lag?

B. In general, we all know V/MA get paid on GDV and # of transactions. Much of it is from merchants. But does anyone have ideas about how much issuers pay (either gross or net of client incentives)? Are their payments based on cards issued or transactions or volume? Or all three? (I understand it's all the same transaction so it's difficult so separate. I'm trying to use this information to determine the effect of banking consolidation on these players.)

C. How do V/MA share in the economics of co-brands?

D. What do V/MA get paid on transactions on their brand which are NOT processed by them? In such cases, who are some of the other networks processing these transactions? Are there any particular cases where this happens more? E.g. debit v/s credit, or intra-Europe, etc.

E. Where on the CF statement are capitalized client incentives? Because they cannot be seen there, my guess is that these are withheld by issuers in making their payments to V/MA. The revenue presentation is 'net'. So the capitalization in the CF statement is implied via the reduction in net-income v/s the way you'd capitalize anything else (e.g. PP&E). Can someone please confirm?

F. In Europe, is "Scheme" the same as brand? If so, is the Article 8 separation of Scheme and processing is the same as brand v/s processing?

Update: I do understand the cash-flows... meaning, how Visa simply keeps portion of the merchant discount, etc. The questions above are more about understanding "who pays who what and when" from a business/contractual standpoint rather than how the cash flows between parties as a matter of practice.

A. Yes, data processing fees are a flat fee per transaction, regardless of whether it's a $1 charge or a $1m charge. I think it's around $.073? Service fees are a function of payment volume. Historically this has been around .11% on the dollar amount of every transaction. All said, a $100 transaction will net Visa ~ $0.17.

B. Visa does not make money from merchants. It comes from banks. I think there are many variables that affect what they ultimately pay (e.g., transaction type, payment volume, fraud rates, chargebacks, etc). I would LOVE to see what one of these contracts actually looks like.

C. I'm not sure what the actual break down is and I'm sure it differs for each cobrand partner and bank. But I believe most of the time the issuer pays a "bounty" to the partner (e.g., airline or Costco) for every new sign up. Issuers benefit because they get a new sales channel of perhaps a highly desirable customer base (e.g., Costco customers, freq travelers, etc) who spend a lot on their cards (which means more interchange fees for them). Also probably some data sharing between parties. As far as benefits for V/MA... more and more frequent spend on cards is good. More acceptance at merchants is good. Cobrand cards help. (I'm sure there's more I'm missing though)

D. I believe I read somewhere they get paid the data processing fee, but not the service fee. Would love to know if that is true though.

F. I would think scheme = brand, but am not positive.
Title: Re: V - Visa
Post by: cameronfen on February 18, 2019, 03:54:42 PM
I think at some point, the fintech that has developed in emerging markets will realize they can target the United States.  Obviously card companies have a formidable network moat, but you are already seeing some chains in the US accept alipay (and why not the fees are like half the price as cards).  At the very least this will threaten pricing power. 
Title: Re: V - Visa
Post by: mjm on February 18, 2019, 04:06:28 PM
do not know much, but do know JPM entered contract whereby it's think its costs are fixed with V.

https://www.reuters.com/article/us-jpmorganchase-creditcards-insight/jpmorgan-uses-its-might-to-cut-costs-in-credit-card-market-idUSKCN0R80B620150908
Title: Re: V - Visa
Post by: SlowAppreciation on February 19, 2019, 12:57:38 PM
Buy-side analyst here who covers V and MA. Just want to clarify a couple points that have been made. In general I should note that V and MA are really bad at disclosing this stuff. It is indeed part of their secret sauce, so you can't really blame them, but it does make diligence pretty hard.

A. What's been said is roughly correct. Keep in mind that net revenue yields are much higher on credit than debit (and significantly higher than both when talking about cross-border).

B. V/MA charge both the issuers and merchant acquirers (e.g., Worldpay, Global Payments, etc.). But our work suggests that client incentives are disproportionally allocated towards the issuer side (makes sense given their concentration as you point out). Frankly V and MA are monopolies only on the merchant side; issuers have a choice of either V or MA and thus more leverage in extracting incentives.

C. Economics are generally no different than your average transaction, but given these customers are often more affluent and loyal than on average, V and MA compete aggressively here on incentives. Also, given co-branding relationships are often prevalent across an entire industry, individual players are unlikely to all use the same network because they don't want to share their merchant data (e.g., all of the major US airlines use different networks).

D. There's no hard-and-fast rule here, but we've heard it's roughly half (basically just service revenues / brand fees, and no transaction processing fees). There are a ton of debit networks out there, which has resulted in lower net revenue yields and processing share (e.g., STAR, NYCE, PULSE debit networks). Europe is the biggest place where V and MA often don't process, though there is not a pan-European network (many attempts have failed). Instead, various countries have domestic card networks (like Cartes Bancaires in France and Girocard in Germany). These are old, crappy networks that V and MA are trying to displace, but since they are still OWNED by the banks, V and MA haven't gained much momentum in winning share. That said, believe it or not many of these domestic networks can't process debit transactions online (e.g., Girocard), and since Europe is generally credit-averse, the rise of eComm might allow V and MA to make their value prop a bit more clear as time goes on.

E. This is exactly right. Sometimes incentives are reductions in cold hard cash due, and other times they are a reduction in fees after a certain amount of volume is reached. Best to track incentives / rebates as a % of gross revenues.

F. Yes, scheme = brand. The domestic networks I refer to above are often called "domestic schemes" in Europe, though they are really schemes / brands plus networks. (And then AMEX would be a scheme / brand plus network PLUS issuer.) This rule didn't cause much of a problem beyond requiring networks to break out these revenues separately. Note that some of the domestic networks in Europe like Girocard don't actually charge scheme fees, just interchange, which is regulated by the way at 30bps on credit and 20bps on debit in the EU.

Very helpful, thank you.
Title: Re: V - Visa
Post by: AdjustedEarnings on February 21, 2019, 08:44:13 AM
Excellent, thank you! What do you make of the recent cross border trends at V?

Buy-side analyst here who covers V and MA. Just want to clarify a couple points that have been made. In general I should note that V and MA are really bad at disclosing this stuff. It is indeed part of their secret sauce, so you can't really blame them, but it does make diligence pretty hard.

A. What's been said is roughly correct. Keep in mind that net revenue yields are much higher on credit than debit (and significantly higher than both when talking about cross-border).

B. V/MA charge both the issuers and merchant acquirers (e.g., Worldpay, Global Payments, etc.). But our work suggests that client incentives are disproportionally allocated towards the issuer side (makes sense given their concentration as you point out). Frankly V and MA are monopolies only on the merchant side; issuers have a choice of either V or MA and thus more leverage in extracting incentives.

C. Economics are generally no different than your average transaction, but given these customers are often more affluent and loyal than on average, V and MA compete aggressively here on incentives. Also, given co-branding relationships are often prevalent across an entire industry, individual players are unlikely to all use the same network because they don't want to share their merchant data (e.g., all of the major US airlines use different networks).

D. There's no hard-and-fast rule here, but we've heard it's roughly half (basically just service revenues / brand fees, and no transaction processing fees). There are a ton of debit networks out there, which has resulted in lower net revenue yields and processing share (e.g., STAR, NYCE, PULSE debit networks). Europe is the biggest place where V and MA often don't process, though there is not a pan-European network (many attempts have failed). Instead, various countries have domestic card networks (like Cartes Bancaires in France and Girocard in Germany). These are old, crappy networks that V and MA are trying to displace, but since they are still OWNED by the banks, V and MA haven't gained much momentum in winning share. That said, believe it or not many of these domestic networks can't process debit transactions online (e.g., Girocard), and since Europe is generally credit-averse, the rise of eComm might allow V and MA to make their value prop a bit more clear as time goes on.

E. This is exactly right. Sometimes incentives are reductions in cold hard cash due, and other times they are a reduction in fees after a certain amount of volume is reached. Best to track incentives / rebates as a % of gross revenues.

F. Yes, scheme = brand. The domestic networks I refer to above are often called "domestic schemes" in Europe, though they are really schemes / brands plus networks. (And then AMEX would be a scheme / brand plus network PLUS issuer.) This rule didn't cause much of a problem beyond requiring networks to break out these revenues separately. Note that some of the domestic networks in Europe like Girocard don't actually charge scheme fees, just interchange, which is regulated by the way at 30bps on credit and 20bps on debit in the EU.
Title: Re: V - Visa
Post by: Liberty on February 22, 2019, 09:36:10 AM
https://news.bloomberglaw.com/class-action/visa-mastercard-settlement-up-to-6-24b-gets-prelim-court-nod
Title: Re: V - Visa
Post by: Jerry Capital on February 22, 2019, 02:47:56 PM
Merchant Discount Rate = Interchange + Processing Fee + Network Fee

A typical transaction might look like the following:

Merchant Discount Rate = 200 basis points

Issuing Bank (Interchange or issuer fee) = 170 basis points

Merchant Bank (Merchant Acquirer Fee or processing fee) = 20 basis points

Network Fee (V/MA Fee) = 10 basis points

If this transaction was $100 the merchant would receive $98, the issuer say Royal Bank of Canada $1.7, V/MA 0.10$, the merchant bank say global payments/moneris would receive $0.20

Merchant Discount Rate = Net Interchange (Interchange - Cost of Rewards) + Processing Fee + Network Fee

Rewards = 100 basis points

You can make things a little more complicated adding in customer rewards which would be the same as above but the issuing bank has to fund the cost of rewards to get net interchange, on average its about 100 basis points (1% cash back, 1% in travel rewards). So the issuing bank would be left with 70 basis points. If the rewards are say 2% cash back then the MDR would simply go up from 2% to 3% (for example the MDR on a World Elite is something over 3%, which is why merchants don't like accepting these premium cards).

You could further explore the issuing banks profitability by taking net interchange and adding interest on late balances less the cost of bad credit.

Net Interchange +/- Net Interest or (Interchange - Cost of Rewards) +/- (Interest Revenue - Interest Expense)

The above numbers are extremely rough, and vary from country to country, I am sure people can poke holes in them but the magnitudes should be quite accurate for North America.

In terms of consolidation of the banking industry I would point out that some of the highest ROEs in banking come from the credit card issuing business. Also note where Apple took 10 to 15 basis points from when they introduced apple pay - the issuing banks...

If anyone wants to further add to the above equations it would be helpful, but for me I feel like the above is enough to generally understand the porters five forces in the industry.
Title: Re: V - Visa
Post by: SlowAppreciation on February 24, 2019, 08:30:36 AM
Does anyone know where I can find Visa's annual cross-border volumes (total $ amnt)? They disclose the growth each quarter and year, but I haven't been able to find the actual dollar amount. Or is this not shared and can only backed into from the estimated yield?
Title: Re: V - Visa
Post by: SlowAppreciation on February 25, 2019, 08:29:19 PM
Does anyone know where I can find Visa's annual cross-border volumes (total $ amnt)? They disclose the growth each quarter and year, but I haven't been able to find the actual dollar amount. Or is this not shared and can only backed into from the estimated yield?

Yep, not shared! It's huge though no doubt, perhaps close to 40% of net revenues

Bah that’s what I thought. Can’t it be backed into based on estimated yield though (around 1%?)
Title: Re: V - Visa
Post by: AdjustedEarnings on March 14, 2019, 07:36:47 AM
Where can I find reliable and up-to-date information on European interchange regulation? What does this regulation portend for regulation elsewhere, outside Europe? Could other countries go this far?
Title: Re: V - Visa
Post by: AdjustedEarnings on March 14, 2019, 11:31:31 AM
Not good for Visa Direct:

https://www.cnet.com/news/paypal-now-lets-you-instantly-transfer-money-to-bank-accounts/

The fact that PayPal has access to almost-RT ACH through JPM probably means Venmo will soon have this functionality too (currently I believe you need to do push payments using debit). Thankfully the fee is on par with network's push payments. Though, here, the chance of devolving into a price war are higher as their end customers (Venmo, Zelle, etc.) are not profitable and are still figuring out their monetization models. Let's hope commercial sense prevails.
Title: Re: V - Visa
Post by: Liberty on April 16, 2019, 05:33:00 AM
https://www.youtube.com/watch?v=_7xZHHkgeRk

Visa CEO interview
Title: Re: V - Visa
Post by: fuzzhead1506 on April 16, 2019, 04:01:00 PM
Current big picture thoughts on Visa:

5 year revenue growth of 13%
share reduction to 2100
Exit EV/Rev TTM multiple of 15.5x
Debt of 70B, Cash of 10B
--> Mkt cap of 539B
share price of $257 at year 5
plus dividends of $8 gets a $265 total return... that gets you between 10% and 11% returns from this level

Anything I am missing?
Title: Re: V - Visa
Post by: SlowAppreciation on April 16, 2019, 04:36:14 PM
Current big picture thoughts on Visa:

5 year revenue growth of 13%
share reduction to 2100
Exit EV/Rev TTM multiple of 15.5x
Debt of 70B, Cash of 10B
--> Mkt cap of 539B
share price of $257 at year 5
plus dividends of $8 gets a $265 total return... that gets you between 10% and 11% returns from this level

Anything I am missing?

You can look at it like this too:
Title: Re: V - Visa
Post by: fuzzhead1506 on April 16, 2019, 08:58:24 PM


You can look at it like this too:

I suppose I lean bearish on my operating margins estimates.  I would think that if V gets that much margin expansion then we would see a rerate higher (not lower). Unless interest rates also went up rather drastically, that is. 

Do you have any thoughts on how that margin expansion might happen or were you just pulling numbers out of a hat, like me?  :P
Title: Re: V - Visa
Post by: SlowAppreciation on April 17, 2019, 05:26:36 AM


You can look at it like this too:

I suppose I lean bearish on my operating margins estimates.  I would think that if V gets that much margin expansion then we would see a rerate higher (not lower). Unless interest rates also went up rather drastically, that is. 

Do you have any thoughts on how that margin expansion might happen or were you just pulling numbers out of a hat, like me?  :P

Yeah it might be aggressive, though their business has tons of operating leverage so it’s not impossible. The incremental cost of processing each transaction is almost $0, and it costs the same to process a $.01 transaction as it does a $1,000 transaction. So Visa doesn’t need to grow expenses anywhere near the same rate as payment and transaction volume. As a result, operating margins should expand. Especially when they bring V Europe pricing to be more in line with the rest of the business.
Title: Re: V - Visa
Post by: Jurgis on April 17, 2019, 06:47:58 AM
Do you all incorporate possible regulatory pushback on fees? It's tough to estimate I grant that.
Title: Re: V - Visa
Post by: SlowAppreciation on April 17, 2019, 07:55:52 AM
Do you all incorporate possible regulatory pushback on fees? It's tough to estimate I grant that.

I'm not smart enough to estimate it, so I just bake in conservatism elsewhere. I figure cross-border fees are most at risk (either due to regulatory or market factors, or both), so I forecast its growth rate to be about half of what it has been for the past 5-10yrs. And some could argue that a 20x multiple is on the low side.

Title: Re: V - Visa
Post by: TheAiGuy on April 25, 2019, 02:25:03 PM
The multiples in those valuations are too probably low if you really get 13% revenue growth for five years....

Current big picture thoughts on Visa:

5 year revenue growth of 13%
share reduction to 2100
Exit EV/Rev TTM multiple of 15.5x
Debt of 70B, Cash of 10B
--> Mkt cap of 539B
share price of $257 at year 5
plus dividends of $8 gets a $265 total return... that gets you between 10% and 11% returns from this level

Anything I am missing?

You can look at it like this too:
Title: Re: V - Visa
Post by: SlowAppreciation on April 25, 2019, 06:58:21 PM
The multiples in those valuations are too probably low if you really get 13% revenue growth for five years....

Current big picture thoughts on Visa:

5 year revenue growth of 13%
share reduction to 2100
Exit EV/Rev TTM multiple of 15.5x
Debt of 70B, Cash of 10B
--> Mkt cap of 539B
share price of $257 at year 5
plus dividends of $8 gets a $265 total return... that gets you between 10% and 11% returns from this level

Anything I am missing?

You can look at it like this too:

Probably right.
Title: Re: V - Visa
Post by: mranski on May 23, 2019, 12:09:32 PM
Watched a 5 minute podcast called Card-maggedon with Interac ceo Mark O’Connell on Fin Post Canada. He is predicting the demise of the credit card more than I would have thought. Also he is confirming active blockchain review. I thought it was pretty good.
Title: Re: V - Visa
Post by: Liberty on May 28, 2019, 11:25:46 AM
Piece on Visa, MasterCard and Paypal:

https://www.barrons.com/articles/visa-mastercard-paypal-digital-payments-51558670403
Title: Re: V - Visa
Post by: StubbleJumper on May 28, 2019, 01:58:06 PM
Piece on Visa, MasterCard and Paypal:

https://www.barrons.com/articles/visa-mastercard-paypal-digital-payments-51558670403


Interesting article.  What is too rarely discussed in these sorts of articles is the relative importance of extending credit.  The focus is all on the point-of-sale transaction, but there's been plenty of POS competition from bank cards going back a couple of decades.  But, the credit card companies have always done something that the debit cards couldn't and that Apple or PayPal won't do, which is issue credit.  Of all the credit card transactions that are completed every month, how many are actually repaid in full at the end of the month to avoid incurring interest?  How many consumers go a whole year without ever carrying a credit card balance?  To me, that's why Apple Pay or PayPal cannot replicate the CC industry...it's got nothing to do with the back-office payment mechanics, and everything to do with the ability to extend credit.


SJ
Title: Re: V - Visa
Post by: abitofvalue on May 28, 2019, 03:30:29 PM
But extending credit is a very very cyclical business.   Investors don't like it (see various cc operators trading at 8x).  Heck PayPal sold it's credit business  in part because investors didn't like the exposure to credit.. 
Title: Re: V - Visa
Post by: Spekulatius on May 28, 2019, 03:52:34 PM
But extending credit is a very very cyclical business.   Investors don't like it (see various cc operators trading at 8x).  Heck PayPal sold it's credit business  in part because investors didn't like the exposure to credit..

I wonder how cyclical some highly valued tech business will be. Uber/Lyft/ Ubereats/ Airbnb is all discretionary spending. Pay for Dropbox (insert your favorite subscription service here ). - replace with a similar free offering. SQ - dependent on restaurant and small business which are highly vulnerable in a recession. GOOG and FB are all about advertising which moves with GNP.

Then the whole tech startup economy - Wework- short term leases with long term lease liabilities. The list goes on.... A lot of things that are taken for grant in a long upturn really isn’t.
Title: Re: V - Visa
Post by: SHDL on May 28, 2019, 04:37:00 PM
I wonder how cyclical some highly valued tech business will be. Uber/Lyft/ Ubereats/ Airbnb is all discretionary spending. Pay for Dropbox (insert your favorite subscription service here ). - replace with a similar free offering. SQ - dependent on restaurant and small business which are highly vulnerable in a recession. GOOG and FB are all about advertising which moves with GNP.

Then the whole tech startup economy - Wework- short term leases with long term lease liabilities. The list goes on.... A lot of things that are taken for grant in a long upturn really isn’t.

Yup.  And the operating leverage...  It was a lot of fun on the way up though.
Title: Re: V - Visa
Post by: StubbleJumper on May 28, 2019, 06:12:05 PM
But extending credit is a very very cyclical business.   Investors don't like it (see various cc operators trading at 8x).  Heck PayPal sold it's credit business  in part because investors didn't like the exposure to credit..


Well, that's the beauty of Visa and Mastercard.  Effectively, they don't extend credit, they just benefit from the merchant fees when banks extend credit.  But, when Apple Pay or PayPal try to compete in point of sale transactions, a large segment of the population needs to fund their purchase from their credit card because they are chronically broke.  For those people, there's not much reason to not just use their CC directly instead of buggering around with a third-party payment service.


SJ
Title: Re: V - Visa
Post by: Jerry Capital on May 29, 2019, 04:03:51 AM
Mind boggling how few people understand the payments space... explains the stock prices
Title: Re: V - Visa
Post by: tripleoptician on May 29, 2019, 06:05:47 AM
Mind boggling how few people understand the payments space... explains the stock prices

Can you recommend any good primers to improve understanding of the payments space?
Thanks in advance
Title: Re: V - Visa
Post by: Jerry Capital on May 29, 2019, 06:54:11 AM
I posted something in the thread that explains the basic that you need to answer the questions "how does $V & $MA make money"

but i would suggest pretending like you are trying to start your own store and go through the thought process.

Do a porters five forces

draw out he payment flow in the four-party model, everytime you see a new form of payment, redraw the model, how does the four-party model change with ApplePay versus tap to pay credit?

Braintree has a good glossary

https://articles.braintreepayments.com/
https://www.braintreepayments.com/blog/definitions-for-the-payment-processing-industry/
Title: Re: V - Visa
Post by: SlowAppreciation on May 29, 2019, 10:19:57 AM
Mind boggling how few people understand the payments space... explains the stock prices

Can you recommend any good primers to improve understanding of the payments space?
Thanks in advance

I found that understanding the history of the payment industry was a big help in understanding the way it is today.

Here are some good sources to get you started:
Title: Re: V - Visa
Post by: Casey on May 29, 2019, 12:55:30 PM
Mind boggling how few people understand the payments space... explains the stock prices

At what price do you think it would be fairly valued, and at what point would you be buying a lot?

To the extent that there is a discount, do you think it's because their moat and growth would vanish "all at once" in a way that's hard to anticipate?
Title: Re: V - Visa
Post by: Liberty on May 30, 2019, 04:50:49 AM
I put together a small writeup as well: http://minesafetydisclosures.com/blog/2019/5/29/part-l-a-history-of-visa


He's too modest, so he buried it at the end, but check this out.
Title: Re: V - Visa
Post by: SHDL on May 30, 2019, 05:27:23 AM
I put together a small writeup as well: http://minesafetydisclosures.com/blog/2019/5/29/part-l-a-history-of-visa


He's too modest, so he buried it at the end, but check this out.

Yes, this deserves to be more prominently displayed.  Looking forward to Part 2!
Title: Re: V - Visa
Post by: rranjan on May 30, 2019, 08:30:16 AM
I put together a small writeup as well: http://minesafetydisclosures.com/blog/2019/5/29/part-l-a-history-of-visa


He's too modest, so he buried it at the end, but check this out.

+1

Very well written. 2nd part?
Title: Re: V - Visa
Post by: SlowAppreciation on May 30, 2019, 09:15:00 AM
I put together a small writeup as well: http://minesafetydisclosures.com/blog/2019/5/29/part-l-a-history-of-visa


He's too modest, so he buried it at the end, but check this out.

+1

Very well written. 2nd part?

Thanks all. 2nd part probably sometime next week.
Title: Re: V - Visa
Post by: Nomad on June 01, 2019, 02:15:11 PM
I get that Visa is a great business - but so does everybody else. At 17x revenues, where's the mispricing here?

How is this not simply a 2019 iteration of the "can't miss" Nifty Fifty companies?
Title: Re: V - Visa
Post by: Liberty on June 01, 2019, 04:19:18 PM
I get that Visa is a great business - but so does everybody else. At 17x revenues, where's the mispricing here?

How is this not simply a 2019 iteration of the "can't miss" Nifty Fifty companies?

Why is revenue the right metric here, especially for a company with close to 70% EBITDA margins?

Around 3-3.5% FCF yield on a business of this quality growing double digits with a pretty big runway (cash is still a huge portion of transactions around the world) and new opportunities thanks to technology (lots of new entrants building on top of Visa and MA rails, like Square and Apple Pay and Paypal/Venmo and such). Not to mention that Visa Europe is still under-earning.
Title: Re: V - Visa
Post by: Nomad on June 01, 2019, 06:16:13 PM

Why is revenue the right metric here, especially for a company with close to 70% EBITDA margins?

Around 3-3.5% FCF yield on a business of this quality growing double digits with a pretty big runway (cash is still a huge portion of transactions around the world) and new opportunities thanks to technology (lots of new entrants building on top of Visa and MA rails, like Square and Apple Pay and Paypal/Venmo and such). Not to mention that Visa Europe is still under-earning.

All of that makes a lot of sense, and I have looked at Visa as a long-term holding, but I haven't been able to justify a purchase as V seems priced for perfection on nearly every available metric.

While I agree that cashless payments have a long runway, I'm uncertain that Visa ends up capturing much of that value. What's to stop other emerging economies from following the Chinese development model and locking V out of their markets to create local UnionPay / AliPay clones? Even in an "open" competitive environment, the risk of disruption is already present. For example, Africa has already developed alternatives to the MA/V duopoly. In Kenya, for example, you can pay anyone you want - including merchants - with the Mpesa system by simply sending them a text message.

Payments volumes tend to track economic activity, and future growth in FCF is ultimately dependent on V maintaining its strong margins (not necessarily a given depending on the regulatory climate in the US/EU and the need to invest in additional capacity to support continued international growth).

I do think that Visa - at present - is a great business. I just tend to think that the market has more than priced in the growth story that you allude to and that there's little margin of safety here should the company fail to deliver on the market's already sky-high expectations.  However, I have been burned badly on "story" stocks in the past so I am willing to admit that some of my hesitation could be due to cognitive bias (cat sits on a hot stove so it never again sits on a cold one, etc.). Very curious to see how this one develops.
Title: Re: V - Visa
Post by: Liberty on June 02, 2019, 04:49:50 AM
How is it priced for perfection? When the market is selling for close to 20x, a company of much higher quality (ROIC, ROE, margins, moat, runway) than the index selling for around 30x isn't that expensive.

China kept Visa and MA out, so that left space for TCEHY and BABA to create their own rails. The rest of the world already has Visa and MA rails, they're reliable, ubiquitous, and cost 15bps (most of the costs are from the issuer banks, and if some fees are reduced, that's likely where, since you could cut the processor fees in half and it wouldn't even be noticed by consumers). Cash is more expensive than that, when you take into account security costs. Very hard to compete with, which is why almost all new payment tech of the past few years has been built on top of it.
Title: Re: V - Visa
Post by: Spekulatius on June 02, 2019, 08:40:05 AM
How is it priced for perfection? When the market is selling for close to 20x, a company of much higher quality (ROIC, ROE, margins, moat, runway) than the index selling for around 30x isn't that expensive.

China kept Visa and MA out, so that left space for TCEHY and BABA to create their own rails. The rest of the world already has Visa and MA rails, they're reliable, ubiquitous, and cost 15bps (most of the costs are from the issuer banks, and if some fees are reduced, that's likely where, since you could cut the processor fees in half and it wouldn't even be noticed by consumers). Cash is more expensive than that, when you take into account security costs. Very hard to compete with, which is why almost all new payment tech of the past few years has been built on top of it.

In order for V and MC to work out, you need to assume that no new rails are going to be build in the foreseeable future. Any new rail in payments is probably going to force lower pricing, so even a smallish market share may impair their value quite a bit.
With the ascend of tech titans like FB, Google, Apple who own the customer relationship and can have instant scale, this scenario has become quite more likely, imo. It hasn’t happened yet, because existing rails work quite well and it’s cheap enough that competitions don’t bother, or had easier target markets to go after. However, I think the tech is not a hurdle any more. One addition vector of attack could bento purchase an existing rail like Discover. Discover also works in China.
Work quite well
Title: Re: V - Visa
Post by: abitofvalue on June 02, 2019, 09:11:34 AM
How is it priced for perfection? When the market is selling for close to 20x, a company of much higher quality (ROIC, ROE, margins, moat, runway) than the index selling for around 30x isn't that expensive.

China kept Visa and MA out, so that left space for TCEHY and BABA to create their own rails. The rest of the world already has Visa and MA rails, they're reliable, ubiquitous, and cost 15bps (most of the costs are from the issuer banks, and if some fees are reduced, that's likely where, since you could cut the processor fees in half and it wouldn't even be noticed by consumers). Cash is more expensive than that, when you take into account security costs. Very hard to compete with, which is why almost all new payment tech of the past few years has been built on top of it.


 

In order for V and MC to work out, you need to assume that no new rails are going to be build in the foreseeable future. Any new rail in payments is probably going to force lower pricing, so even a smallish market share may impair their value quite a bit.
With the ascend of tech titans like FB, Google, Apple who own the customer relationship and can have instant scale, this scenario has become quite more likely, imo. It hasn’t happened yet, because existing rails work quite well and it’s cheap enough that competitions don’t bother, or had easier target markets to go after. However, I think the tech is not a hurdle any more. One addition vector of attack could bento purchase an existing rail like Discover. Discover also works in China.
Work quite well


Discover works in China because of its agreement with China UnionPay. Discover doesnt have its own network there. You think CUP keeps that relationship going if a tech giant buys Discover? The whole national champion payment system movement is because they wnt V/MA (american companies) controlling payments. dont think it will be diff for a tech owner.

In addition to V/MA being there, the other big problem is scale. Payments is a scale business. China didnt have V/MA and had scale so its networks could be built. India had V/MA but not well penetrated and certainly can build scale so RuPay made some sense.  That said, most leading banks (the ones that cater to upper middle class Indian consumers) have stuck with V/MA vs RuPay for a number of reasons including better perceived global acceptance, brand value and prob some special economics (so yes there is pricing pressure from RUpAY).

think the relative lack of success PayPal had disintermediating V/MA was telling. Eventually, partnering with them is just easier, more profitable and imo to be the path the apple, fb, googl to partner with tthem.  The one area that could be concerning though i think is if enough volume is taken off rails through some of these tech-enabled networks such that it never flows through V, MA, banks etc. but i am not sure there is enough incentive for any one party to attempt to do that.
Title: Re: V - Visa
Post by: Liberty on June 02, 2019, 01:38:23 PM
How is it priced for perfection? When the market is selling for close to 20x, a company of much higher quality (ROIC, ROE, margins, moat, runway) than the index selling for around 30x isn't that expensive.

China kept Visa and MA out, so that left space for TCEHY and BABA to create their own rails. The rest of the world already has Visa and MA rails, they're reliable, ubiquitous, and cost 15bps (most of the costs are from the issuer banks, and if some fees are reduced, that's likely where, since you could cut the processor fees in half and it wouldn't even be noticed by consumers). Cash is more expensive than that, when you take into account security costs. Very hard to compete with, which is why almost all new payment tech of the past few years has been built on top of it.

In order for V and MC to work out, you need to assume that no new rails are going to be build in the foreseeable future. Any new rail in payments is probably going to force lower pricing, so even a smallish market share may impair their value quite a bit.
With the ascend of tech titans like FB, Google, Apple who own the customer relationship and can have instant scale, this scenario has become quite more likely, imo. It hasn’t happened yet, because existing rails work quite well and it’s cheap enough that competitions don’t bother, or had easier target markets to go after. However, I think the tech is not a hurdle any more. One addition vector of attack could bento purchase an existing rail like Discover. Discover also works in China.
Work quite well

Everybody seems to think that doing what V and MA is doing is easy, eh?

I'm sure that Apple and Facebook really need to deal with fraud on billions of transactions and deal tens of millions of point-of-sales, at reliabilities that are incredibly high, and losing money for years since before you reach scale you can't make money at 15bps (or less). And even if they charged 5 bps, would anyone notice and switch because of that?

That's why Apple Pay runs on visa rails and the Apple Card runs on Mastercard rails. Because they want to focus on where they can add value -- the user experience -- rather than on overbuilding already existing massively complex infrastructure that would take years and years and years to get anywhere.

I'm sure some will try to move some things over to their own rails and such, there's always competition, but the stock isn't priced at 200x, it's 30x for a business growing organically at 15-20% and needs basically no capital to grow at close to 100% incremental margins. Not that demanding. I know a lot of lesser businesses that are a lot more expensive.
Title: Re: V - Visa
Post by: Spekulatius on June 02, 2019, 06:33:06 PM
How is it priced for perfection? When the market is selling for close to 20x, a company of much higher quality (ROIC, ROE, margins, moat, runway) than the index selling for around 30x isn't that expensive.

China kept Visa and MA out, so that left space for TCEHY and BABA to create their own rails. The rest of the world already has Visa and MA rails, they're reliable, ubiquitous, and cost 15bps (most of the costs are from the issuer banks, and if some fees are reduced, that's likely where, since you could cut the processor fees in half and it wouldn't even be noticed by consumers). Cash is more expensive than that, when you take into account security costs. Very hard to compete with, which is why almost all new payment tech of the past few years has been built on top of it.

In order for V and MC to work out, you need to assume that no new rails are going to be build in the foreseeable future. Any new rail in payments is probably going to force lower pricing, so even a smallish market share may impair their value quite a bit.
With the ascend of tech titans like FB, Google, Apple who own the customer relationship and can have instant scale, this scenario has become quite more likely, imo. It hasn’t happened yet, because existing rails work quite well and it’s cheap enough that competitions don’t bother, or had easier target markets to go after. However, I think the tech is not a hurdle any more. One addition vector of attack could bento purchase an existing rail like Discover. Discover also works in China.
Work quite well

Everybody seems to think that doing what V and MA is doing is easy, eh?

I'm sure that Apple and Facebook really need to deal with fraud on billions of transactions and deal tens of millions of point-of-sales, at reliabilities that are incredibly high, and losing money for years since before you reach scale you can't make money at 15bps (or less). And even if they charged 5 bps, would anyone notice and switch because of that?

That's why Apple Pay runs on visa rails and the Apple Card runs on Mastercard rails. Because they want to focus on where they can add value -- the user experience -- rather than on overbuilding already existing massively complex infrastructure that would take years and years and years to get anywhere.

I'm sure some will try to move some things over to their own rails and such, there's always competition, but the stock isn't priced at 200x, it's 30x for a business growing organically at 15-20% and needs basically no capital to grow at close to 100% incremental margins. Not that demanding. I know a lot of lesser businesses that are a lot more expensive.

Organic revenue growth for V is probably around 10% going forward, which makes a 30x PE sort of expensive. Margins can’t increase forever.
Title: Re: V - Visa
Post by: Jerry Capital on June 02, 2019, 07:15:43 PM
2009 V is expensive
2010 V is expensive
2011 V is expensive
2012 V is expensive
2013 V is expensive
2014 V is expensive
2015 V is expensive
2016 V is expensive
2017 V is expensive
2018 V is expensive
2019 V is expensive
2020 V is expensive......

maybe it was cheap all along and youre assumptions were wrong?
Title: Re: V - Visa
Post by: RuleNumberOne on June 02, 2019, 11:16:50 PM
I think this could get disrupted by a Robinhood or Schwab-like bank-wannabe. Robinhood wanted to attract deposits with its 3% checking account. Instead it could get merchants to open checking accounts by giving them a payment device that accepts payments from Robinhood apps.

There is a big pricing gap with current credit cards. Even though V and MA take 20bps, the merchants probably pay out 3-5% to card companies, consumers get 1-2% in rewards.

Well-funded startups like an Uber are the most likely disruptors in a space like this one.
Title: Re: V - Visa
Post by: Jerry Capital on June 03, 2019, 03:54:06 AM
No.
Title: Re: V - Visa
Post by: Liberty on June 03, 2019, 05:12:11 AM

Organic revenue growth for V is probably around 10% going forward, which makes a 30x PE sort of expensive. Margins can’t increase forever.

What's your math here? Organic growth alone isn't enough to know if 30x is expensive. If you get 10% growth at ridiculously high ROIC and incremental margins, don't need capital so you buy back shares with FCF, the leverage going down from the top line to the bottom line can easily mean that per share value increases 15-20%, and if the terminal value is high, 30x can easily be a bargain.
Title: Re: V - Visa
Post by: Liberty on June 03, 2019, 05:12:54 AM
I think this could get disrupted by a Robinhood or Schwab-like bank-wannabe. Robinhood wanted to attract deposits with its 3% checking account. Instead it could get merchants to open checking accounts by giving them a payment device that accepts payments from Robinhood apps.

There is a big pricing gap with current credit cards. Even though V and MA take 20bps, the merchants probably pay out 3-5% to card companies, consumers get 1-2% in rewards.

Well-funded startups like an Uber are the most likely disruptors in a space like this one.

Zero chance of that happening. Maybe some of the issuing banks get pressured, but the underlying rails won't be touched by that.
Title: Re: V - Visa
Post by: Spekulatius on June 03, 2019, 05:45:00 AM

Organic revenue growth for V is probably around 10% going forward, which makes a 30x PE sort of expensive. Margins can’t increase forever.

What's your math here? Organic growth alone isn't enough to know if 30x is expensive. If you get 10% growth at ridiculously high ROIC and incremental margins, don't need capital so you buy back shares with FCF, the leverage going down from the top line to the bottom line can easily mean that per share value increases 15-20%, and if the terminal value is high, 30x can easily be a bargain.

If V has a 3% FCF yield, then they can buy back 3% of their shares annually, so that gets you 13 % earnings growth/ share, unless they increase margins ( which are already quite high) or lever up ( which at these multiples isn’t all that impactful either.
The big issue is how long the current economics persist or to frame it in other terms what the exit multiple will be in 5 or 10 years.

I do agree that Robin Hood, Uber and the likes more likely use Visa/ MC‘s infrastructure. I believe the bigger risk is completion from new Entries like Amazon, Apple, FB, Google who know a lot about their customers and surely can create an alternative infrastructure. Alternative rails already exist- Discover can be bought for just $25B and trades for less than 9x earnings. A deep pocketed buyer could get instant scale, then overlay a better tech and then probably be up and running. The combined Market cap of MA and V is $600B, so it certainly is an attractive market.
Title: Re: V - Visa
Post by: SlowAppreciation on June 03, 2019, 06:09:51 AM
1. Will transaction and payment volume continue to grow at the same rates in the future?

(https://i.imgur.com/JVQjhT8.png)

I believe yes, because of:

2. And over time, will it get cheaper or more expensive to process those transactions?

(https://i.imgur.com/ByfLBe1.png)
Title: Re: V - Visa
Post by: Liberty on June 03, 2019, 06:49:02 AM

Organic revenue growth for V is probably around 10% going forward, which makes a 30x PE sort of expensive. Margins can’t increase forever.

What's your math here? Organic growth alone isn't enough to know if 30x is expensive. If you get 10% growth at ridiculously high ROIC and incremental margins, don't need capital so you buy back shares with FCF, the leverage going down from the top line to the bottom line can easily mean that per share value increases 15-20%, and if the terminal value is high, 30x can easily be a bargain.

If V has a 3% FCF yield, then they can buy back 3% of their shares annually, so that gets you 13 % earnings growth/ share, unless they increase margins ( which are already quite high) or lever up ( which at these multiples isn’t all that impactful either.
The big issue is how long the current economics persist or to frame it in other terms what the exit multiple will be in 5 or 10 years.

I do agree that Robin Hood, Uber and the likes more likely use Visa/ MC‘s infrastructure. I believe the bigger risk is completion from new Entries like Amazon, Apple, FB, Google who know a lot about their customers and surely can create an alternative infrastructure. Alternative rails already exist- Discover can be bought for just $25B and trades for less than 9x earnings. A deep pocketed buyer could get instant scale, then overlay a better tech and then probably be up and running. The combined Market cap of MA and V is $600B, so it certainly is an attractive market.

Feel free to short it if you think it's priced for perfection and it's that easy for someone to get their own rails.

Personally, I wouldn't be surprised if they kept growing earnings per share at 15%+ for a while. Visa Europe is under-earning and it'll take many years to bring it to the level of the rest of the company, and there's still a lot of cash being used for transactions around the world that is going digital over time, and recently Visa has made moves to get a lot of ACH/direct-deposit-type transactions over its rails (faster, safer, cheaper), so that's a few more trillions in potential transactions to add to the mix. Add to that B2B growing fast, where trillions are being moved between companies still with paper cheques, and that's starting to switch over to digital.
Title: Re: V - Visa
Post by: peterHK on June 03, 2019, 06:52:32 AM

Organic revenue growth for V is probably around 10% going forward, which makes a 30x PE sort of expensive. Margins can’t increase forever.

What's your math here? Organic growth alone isn't enough to know if 30x is expensive. If you get 10% growth at ridiculously high ROIC and incremental margins, don't need capital so you buy back shares with FCF, the leverage going down from the top line to the bottom line can easily mean that per share value increases 15-20%, and if the terminal value is high, 30x can easily be a bargain.

If V has a 3% FCF yield, then they can buy back 3% of their shares annually, so that gets you 13 % earnings growth/ share, unless they increase margins ( which are already quite high) or lever up ( which at these multiples isn’t all that impactful either.
The big issue is how long the current economics persist or to frame it in other terms what the exit multiple will be in 5 or 10 years.

I do agree that Robin Hood, Uber and the likes more likely use Visa/ MC‘s infrastructure. I believe the bigger risk is completion from new Entries like Amazon, Apple, FB, Google who know a lot about their customers and surely can create an alternative infrastructure. Alternative rails already exist- Discover can be bought for just $25B and trades for less than 9x earnings. A deep pocketed buyer could get instant scale, then overlay a better tech and then probably be up and running. The combined Market cap of MA and V is $600B, so it certainly is an attractive market.

Alternatives exist, but Discover is higher cost, and this is a business with network effects. I've never seen a merchant that accepts discover in my 27 years of life. As a consumer, it's useless to me. It's not about tech, it's about the network. Reading the history of Visa, for example, shows how challenging it is to get that network started.

The issue is what is the alternative infrastructure? Debit accounts don't have the consumption smoothing function like credit (you are forced to have wasting cash available; the alternative is high deposit costs if Amazon say were to give sufficient interest). Amazon and Apple don't want to be lenders, it's a shitty business. Blockchain or other tech largely works in a closed network, but isn't nearly as efficient for the settlement and security of outside payments.

So are Visa and MasterCard invincible? No. But the argument "someone else could come along" shows, I think, a poor understanding of what these businesses do and how hard it is to compete with them.
Title: Re: V - Visa
Post by: peterHK on June 03, 2019, 06:53:46 AM
It's also worth adding that if your incremental margins are 95% and you have 70% EBITDA margins now, margins CAN continue to rise as the business grows. It's pretty simple math there...
Title: Re: V - Visa
Post by: RuleNumberOne on June 03, 2019, 08:36:31 AM
If an enterpreneur like Travis Kalanick had gone after payments with $23 billion of cash, wouldn't he have succeeded?

To pay 30x, I would have to convince myself these are not disruptable.

Roku is used by 27 million US homes. Distributing universal card-readers to 27 million small businesses should not take that much capital. Each device would be cheaper than a Roku.
Title: Re: V - Visa
Post by: Sharad on June 03, 2019, 08:44:19 AM
If an enterpreneur like Travis Kalanick had gone after payments with $23 billion of cash, wouldn't he have succeeded?

To pay 30x, I would have to convince myself these are not disruptable.

Roku is used by 27 million US homes. Distributing universal card-readers to 27 million small businesses should not take that much capital. Each device would be cheaper than a Roku.

Square?
Title: Re: V - Visa
Post by: jsgcapital13 on June 03, 2019, 08:57:14 AM
Alternatives exist, but Discover is higher cost, and this is a business with network effects. I've never seen a merchant that accepts discover in my 27 years of life. As a consumer, it's useless to me. It's not about tech, it's about the network. Reading the history of Visa, for example, shows how challenging it is to get that network started.

The issue is what is the alternative infrastructure? Debit accounts don't have the consumption smoothing function like credit (you are forced to have wasting cash available; the alternative is high deposit costs if Amazon say were to give sufficient interest). Amazon and Apple don't want to be lenders, it's a shitty business. Blockchain or other tech largely works in a closed network, but isn't nearly as efficient for the settlement and security of outside payments.

So are Visa and MasterCard invincible? No. But the argument "someone else could come along" shows, I think, a poor understanding of what these businesses do and how hard it is to compete with them.

what do you think is the best read to understand V/MA network and the challenges to scale?
Title: Re: V - Visa
Post by: SlowAppreciation on June 03, 2019, 09:01:31 AM
If an enterpreneur like Travis Kalanick had gone after payments with $23 billion of cash, wouldn't he have succeeded?

To pay 30x, I would have to convince myself these are not disruptable.

Roku is used by 27 million US homes. Distributing universal card-readers to 27 million small businesses should not take that much capital. Each device would be cheaper than a Roku.

It's not an insignificant amount of capital...
Title: Re: V - Visa
Post by: coc on June 03, 2019, 10:08:39 AM
If an enterpreneur like Travis Kalanick had gone after payments with $23 billion of cash, wouldn't he have succeeded?

To pay 30x, I would have to convince myself these are not disruptable.

Roku is used by 27 million US homes. Distributing universal card-readers to 27 million small businesses should not take that much capital. Each device would be cheaper than a Roku.

Distributing card readers has nothing to do with the disruption of V/MA. I’m offering this in good faith. Even Paypal, used by many tens of millions, goes over V/MA rails for the most part. So does Apple’s payment system, and Square. I’d investigate why that is.

Payment networks are very complex when you get down to it, and really hard to replicate. The “debit” part of it might be partially vulnerable, see the success of Venmo for some (relatively small) use cases, Paypal for some others, where you’re avoiding the V/MA system. But these are only domestic transactions, cash-to-cash. Most people I know, self included, use their credit card as a debit card with 30 days of float.

The credit side, I don’t know how you’d to touch it. They’re deeply integrated with the issuing and accepting banks. How would you even attempt to rip it out? And even if you came up with something, why would the banks go along with it, when V/MA work so well and charge so little? Even Amex is somewhat lucky to see their franchise still intact — it’s needed every inch of its “moat” in T&E and corporate cards to stay competitive.

If anyone has a cogent argument as to how/why this would be done, I’d actually love to hear it.
Title: Re: V - Visa
Post by: Liberty on June 03, 2019, 10:39:35 AM
If an enterpreneur like Travis Kalanick had gone after payments with $23 billion of cash, wouldn't he have succeeded?

To pay 30x, I would have to convince myself these are not disruptable.

Roku is used by 27 million US homes. Distributing universal card-readers to 27 million small businesses should not take that much capital. Each device would be cheaper than a Roku.

I'll take the other side. I don't think your assumptions are anything close to realistic.
Title: Re: V - Visa
Post by: SlowAppreciation on June 03, 2019, 11:13:46 AM
The “debit” part of it might be partially vulnerable, see the success of Venmo for some (relatively small) use cases, Paypal for some others, where you’re avoiding the V/MA system. But these are only domestic transactions, cash-to-cash. Most people I know, self included, use their credit card as a debit card with 30 days of float.

The credit side, I don’t know how you’d to touch it. They’re deeply integrated with the issuing and accepting banks. How would you even attempt to rip it out? And even if you came up with something, why would the banks go along with it, when V/MA work so well and charge so little? Even Amex is somewhat lucky to see their franchise still intact — it’s needed every inch of its “moat” in T&E and corporate cards to stay competitive.

If anyone has a cogent argument as to how/why this would be done, I’d actually love to hear it.

This is a good take. Many underestimate the value of extending short-term credit to hundreds of millions—if not billions—of consumers. Hard to argue the benefits to merchants isn't worth 200+ bps.
Title: Re: V - Visa
Post by: Jurgis on June 03, 2019, 11:16:45 AM
IMO you all are looking at risks wrong. The risk for V/MA is what drove their stocks down in the past: regulatory anti-trust fee restrictions. Look at where they traded under regulatory risk in the past and look at what's happening with GOOGL/FB nowadays.

Although I'm sure this won't stop bulls from seeing only blue sky
Title: Re: V - Visa
Post by: Spekulatius on June 03, 2019, 12:19:53 PM
IMO you all are looking at risks wrong. The risk for V/MA is what drove their stocks down in the past: regulatory anti-trust fee restrictions. Look at where they traded under regulatory risk in the past and look at what's happening with GOOGL/FB nowadays.

Although I'm sure this won't stop bulls from seeing only blue sky

Yep, FB and GOOG Trade at sub 20x PE ex cash and have higher organic growth rates than Visa or MasterCard. I was a buyer in GOOG today and I‘d argue it is a much better buy than both of the above right now. And with all quasi Oligopolies, the political risk is all to real.
Title: Re: V - Visa
Post by: Liberty on June 03, 2019, 12:39:15 PM
IMO you all are looking at risks wrong. The risk for V/MA is what drove their stocks down in the past: regulatory anti-trust fee restrictions. Look at where they traded under regulatory risk in the past and look at what's happening with GOOGL/FB nowadays.

Although I'm sure this won't stop bulls from seeing only blue sky

Show me a business without risk.

I love how the argument is now basically "well, it has risks!".

Yeah, sure. The point is to determine if the risk-reward looks good.

When you have 70% EBITDA margins and are capital light, just the fact that those kind of returns haven't been competed away is a pretty good indication that you have a serious moat. If you didn't, where are all the entrants attracted by those economics? Even American Express, which has been there from the start, hasn't been able to make much of a dent and do as well. MA and Visa got in the position where they are because they started out as coops, kind of like VRSK, and that put them in unique positions.
Title: Re: V - Visa
Post by: dwy000 on June 03, 2019, 12:53:44 PM
IMO you all are looking at risks wrong. The risk for V/MA is what drove their stocks down in the past: regulatory anti-trust fee restrictions. Look at where they traded under regulatory risk in the past and look at what's happening with GOOGL/FB nowadays.

Although I'm sure this won't stop bulls from seeing only blue sky

Yep, FB and GOOG Trade at sub 20x PE ex cash and have higher organic growth rates than Visa or MasterCard. I was a buyer in GOOG today and I‘d argue it is a much better buy than both of the above right now. And with all quasi Oligopolies, the political risk is all to real.

I think that's right.  The risk isn't this not growing or going away in the next 5-10 years, it's that growth slows, margins get squeezed and it re-rates to 20x PE from 30x. 
Title: Re: V - Visa
Post by: coc on June 03, 2019, 12:57:36 PM
I agree with the commenter that the main risk is political / regulatory. But we’ve been through that (to some degree) and V/MA came out fine.

There’s a good reason why the banks get to keep 150bps or whatever it is on credit interchange. They are taking risk — of fraud, for example — which they pass much of it back in rewards, and they’re floating you money for a month. In exchange, merchants as a whole get people spending a lot more money than they would otherwise, if everything was cash, and don’t have to worry about getting paid. (Much to the chagrin of those who don’t like the explosion of consumer credit.)

V/MA keep 15-20 bps, not much in the overall context. What’s <$40 billion in combined revenue at V/MA to keep maybe $20 trillion of transactions running smoothly worldwide? It’s a drop in the bucket. There is a good reason the banks got together and did this over the years. It’s a sort of anomaly that they happen to be independent, public companies.

As for growth rates, arguably V/MA have longer runways to grow than either Google or Facebook. Their margins seem to be whatever they choose them to be - how would a squeeze come about? (Again, more than happy to be enlightened if I’m wrong.)

For the record, I’m in the “not a shareholder but should have been” camp.
Title: Re: V - Visa
Post by: vinod1 on June 03, 2019, 05:29:07 PM
Longtime shareholder of both Visa and Mastercard. Other than brand name religions where some of the costs for the services are in the afterlife (you pay in the present world and the rewards are paid out after death in another universe), this industry is as good as it gets.

To take one aspect regarding fraud:

Visa and MasterCard have accumulated vast amounts of data over the years. They have historical data of all the places a card is used. They can provide in real-time (in milliseconds) fraud score on a transaction based on all this historical data whenever a card is being used. This significantly reduces fraud in the system. For example, if a person uses a gas station in a zip-code where they have never shopped before, Visa/MasterCard can flag this transaction for further verification.

In US, fraud losses are about 12 - 13¢ for every $100. These losses are split roughly 60/40 between issuers and merchants. The fees charged by the card networks of around 10 - 15¢ compares favorably to these losses. So both issuers and merchants have an incentive to stay with card networks that can minimize fraud losses. Any new entrant would start with a much smaller dataset and fraud screening would be less effective and fraud costs higher. New entrants thus are at a disadvantage and need to absorb higher losses for several years and are disadvantaged relative to Visa and MasterCard.

There are many such aspects to their competitive advantage.

The main risk as others have pointed out is regulatory. Disruption risk is much lower compared to the regulatory risk.  For disruption you need to have a pain point for some segment of the users that is going to be reduced (like Uber) with a new solution or there must be something that is vastly superior in functionality or usability (like iPhone).

The one area where I can think of is micropayments. For payments less than $2-3 amounts, the existing structure is very costly. If disruption occurs it might start here. V/MA can address this and take out the risk without losing all that much of their existing revenue.

Vinod



Title: Re: V - Visa
Post by: coc on June 03, 2019, 05:53:02 PM
Longtime shareholder of both Visa and Mastercard. Other than brand name religions where some of the costs for the services are in the afterlife (you pay in the present world and the rewards are paid out after death in another universe), this industry is as good as it gets.

To take one aspect regarding fraud:

Visa and MasterCard have accumulated vast amounts of data over the years. They have historical data of all the places a card is used. They can provide in real-time (in milliseconds) fraud score on a transaction based on all this historical data whenever a card is being used. This significantly reduces fraud in the system. For example, if a person uses a gas station in a zip-code where they have never shopped before, Visa/MasterCard can flag this transaction for further verification.

In US, fraud losses are about 12 - 13¢ for every $100. These losses are split roughly 60/40 between issuers and merchants. The fees charged by the card networks of around 10 - 15¢ compares favorably to these losses. So both issuers and merchants have an incentive to stay with card networks that can minimize fraud losses. Any new entrant would start with a much smaller dataset and fraud screening would be less effective and fraud costs higher. New entrants thus are at a disadvantage and need to absorb higher losses for several years and are disadvantaged relative to Visa and MasterCard.

There are many such aspects to their competitive advantage.

The main risk as others have pointed out is regulatory. Disruption risk is much lower compared to the regulatory risk.  For disruption you need to have a pain point for some segment of the users that is going to be reduced (like Uber) with a new solution or there must be something that is vastly superior in functionality or usability (like iPhone).

The one area where I can think of is micropayments. For payments less than $2-3 amounts, the existing structure is very costly. If disruption occurs it might start here. V/MA can address this and take out the risk without losing all that much of their existing revenue.

Vinod

Do you happen to have a source for the 12-13bps of fraud losses in the US? Thanks!
Title: Re: V - Visa
Post by: vinod1 on June 03, 2019, 06:22:20 PM
Longtime shareholder of both Visa and Mastercard. Other than brand name religions where some of the costs for the services are in the afterlife (you pay in the present world and the rewards are paid out after death in another universe), this industry is as good as it gets.

To take one aspect regarding fraud:

Visa and MasterCard have accumulated vast amounts of data over the years. They have historical data of all the places a card is used. They can provide in real-time (in milliseconds) fraud score on a transaction based on all this historical data whenever a card is being used. This significantly reduces fraud in the system. For example, if a person uses a gas station in a zip-code where they have never shopped before, Visa/MasterCard can flag this transaction for further verification.

In US, fraud losses are about 12 - 13¢ for every $100. These losses are split roughly 60/40 between issuers and merchants. The fees charged by the card networks of around 10 - 15¢ compares favorably to these losses. So both issuers and merchants have an incentive to stay with card networks that can minimize fraud losses. Any new entrant would start with a much smaller dataset and fraud screening would be less effective and fraud costs higher. New entrants thus are at a disadvantage and need to absorb higher losses for several years and are disadvantaged relative to Visa and MasterCard.

There are many such aspects to their competitive advantage.

The main risk as others have pointed out is regulatory. Disruption risk is much lower compared to the regulatory risk.  For disruption you need to have a pain point for some segment of the users that is going to be reduced (like Uber) with a new solution or there must be something that is vastly superior in functionality or usability (like iPhone).

The one area where I can think of is micropayments. For payments less than $2-3 amounts, the existing structure is very costly. If disruption occurs it might start here. V/MA can address this and take out the risk without losing all that much of their existing revenue.

Vinod

Do you happen to have a source for the 12-13bps of fraud losses in the US? Thanks!

I did my research on these companies a while back and I have a ton of documents from which I pulled it all together into my writeup.

Sorry, I do detailed writeups but do not publish just so I do not have to worry about referencing to the actual sources.

Vinod
Title: Re: V - Visa
Post by: RuleNumberOne on June 03, 2019, 08:14:02 PM
The enterprise value of V and MA is equal to the enterprise value of GOOG. Vast difference between tech capability and complexity of products.
Title: Re: V - Visa
Post by: RuleNumberOne on June 03, 2019, 09:26:10 PM
Regarding a pain point, I found out from a business owner that the credit card fee is 4%. This is quite a large business with each payment in the order of several thousand dollars.

That is quite painful. The fee must be even higher for smaller businesses or smaller payments. Could become a hot political issue anytime.


The main risk as others have pointed out is regulatory. Disruption risk is much lower compared to the regulatory risk.  For disruption you need to have a pain point for some segment of the users that is going to be reduced (like Uber) with a new solution or there must be something that is vastly superior in functionality or usability (like iPhone).

Vinod
Title: Re: V - Visa
Post by: Liberty on June 04, 2019, 03:13:58 AM
The enterprise value of V and MA is equal to the enterprise value of GOOG. Vast difference between tech capability and complexity of products.

What does that have to do with anything?

Manufacturing cars is more complex than rating bonds, yet Moody's is a better business than Ford.
Title: Re: V - Visa
Post by: Jerry Capital on June 04, 2019, 03:40:42 AM
It's not 4% (although it could be for high rewards cards + AMEX) it's 1 - 3% with average closer to 2%.
Title: Re: V - Visa
Post by: peterHK on June 04, 2019, 06:57:51 AM
Regarding a pain point, I found out from a business owner that the credit card fee is 4%. This is quite a large business with each payment in the order of several thousand dollars.

That is quite painful. The fee must be even higher for smaller businesses or smaller payments. Could become a hot political issue anytime.


The main risk as others have pointed out is regulatory. Disruption risk is much lower compared to the regulatory risk.  For disruption you need to have a pain point for some segment of the users that is going to be reduced (like Uber) with a new solution or there must be something that is vastly superior in functionality or usability (like iPhone).

Vinod

That is the decision of the lender etc. NOT V/MA. V/MA fees are like 50bps, and with that comes the immense benefit of being able to accept cards as a payment network. The alternative, say Apple Pay, still runs on V/MA rails. Venmo runs on Visa Direct.

People need to get over this "credit cards are expensive for merchants therefore V/MA at risk". V/MA are rails that go beyond the action POS method. Nobody wants to build new rails and V/MA have such massive cost advantages at scale that it makes no sense to rebuild them. The actual payment methods around those centralized rails will disrupt each other (e.g Venmo disrupting banks etc.), but my guess is that it will all rely on V/MA in the end to actually get the transaction done.
Title: Re: V - Visa
Post by: cherzeca on June 04, 2019, 07:00:57 AM
Regarding a pain point, I found out from a business owner that the credit card fee is 4%. This is quite a large business with each payment in the order of several thousand dollars.

That is quite painful. The fee must be even higher for smaller businesses or smaller payments. Could become a hot political issue anytime.


The main risk as others have pointed out is regulatory. Disruption risk is much lower compared to the regulatory risk.  For disruption you need to have a pain point for some segment of the users that is going to be reduced (like Uber) with a new solution or there must be something that is vastly superior in functionality or usability (like iPhone).

Vinod

That is the decision of the lender etc. NOT V/MA. V/MA fees are like 50bps, and with that comes the immense benefit of being able to accept cards as a payment network. The alternative, say Apple Pay, still runs on V/MA rails. Venmo runs on Visa Direct.

People need to get over this "credit cards are expensive for merchants therefore V/MA at risk". V/MA are rails that go beyond the action POS method. Nobody wants to build new rails and V/MA have such massive cost advantages at scale that it makes no sense to rebuild them. The actual payment methods around those centralized rails will disrupt each other (e.g Venmo disrupting banks etc.), but my guess is that it will all rely on V/MA in the end to actually get the transaction done.

"V/MA fees are like 50bps"

recent Barrons piece said that their take was 15 bps.  who's right?
Title: Re: V - Visa
Post by: RuleNumberOne on June 04, 2019, 07:16:45 AM
Right now the fee is 4%. This is for payments in the range of $5000.

I think an international money transfer of $5000 can be done for a negligible fee. Why can't I avoid the 4% fee when paying someone in the same city?

This is what makes the 4% tollbooth ripe for disruption. Right now it is either 4% or "pay by cash or check." The disruption is bound to happen at some point.
Title: Re: V - Visa
Post by: Liberty on June 04, 2019, 07:37:00 AM
People need to get over this "credit cards are expensive for merchants therefore V/MA at risk". V/MA are rails that go beyond the action POS method. Nobody wants to build new rails and V/MA have such massive cost advantages at scale that it makes no sense to rebuild them. The actual payment methods around those centralized rails will disrupt each other (e.g Venmo disrupting banks etc.), but my guess is that it will all rely on V/MA in the end to actually get the transaction done.

These people tend to overlook what the cost of cash is for merchants. Higher security and transport cost, etc. Cash isn't free either.
Title: Re: V - Visa
Post by: Spekulatius on June 04, 2019, 08:07:32 AM
People need to get over this "credit cards are expensive for merchants therefore V/MA at risk". V/MA are rails that go beyond the action POS method. Nobody wants to build new rails and V/MA have such massive cost advantages at scale that it makes no sense to rebuild them. The actual payment methods around those centralized rails will disrupt each other (e.g Venmo disrupting banks etc.), but my guess is that it will all rely on V/MA in the end to actually get the transaction done.

These people tend to overlook what the cost of cash is for merchants. Higher security and transport cost, etc. Cash isn't free either.

Cash is better for taxe avoidance. That’s why many like cash.
Title: Re: V - Visa
Post by: DooDiligence on June 04, 2019, 08:22:09 AM
Don't forget the consumer.

Consumers carry plastic & merchants need to accommodate this.

How are you going to change consumer behavior regarding payment methods?

https://www.pymnts.com/news/payments-innovation/2016/how-will-visa-paypal-shape-the-future-of-payments/

The link above is a few years old & may not present a valid discussion.

I'm super ignorant about all of this.
Title: Re: V - Visa
Post by: RuleNumberOne on June 04, 2019, 08:46:15 AM
The idea is to carry plastic, but pay with zero fees. Robinhood or someone else who wants deposits could make such an arrangement with merchants.

Youtube and Gmail have ever increasing storage costs, as the number and quality of videos increase, emails increase. They also have ever-increasing compensation for cutting-edge R&D.

But with payment processing, the costs are fixed. You get ever-increasing revenues without increasing expenses.

Tells me there is room for disruption. Enterpreneurs could get a foothold by facilitating business payments for a flat fee like the $5000 payment I was talking about.


Don't forget the consumer.

Consumers carry plastic & merchants need to accommodate this.

How are you going to change consumer behavior regarding payment methods?
Title: Re: V - Visa
Post by: Liberty on June 04, 2019, 09:04:57 AM
Cash is better for taxe avoidance. That’s why many like cash.

One more reason it's going to go away over time.

Cash doesn't give you cashback rewards or points either.
Title: Re: V - Visa
Post by: Pondside47 on June 04, 2019, 09:12:11 AM
Right now the fee is 4%. This is for payments in the range of $5000.

I think an international money transfer of $5000 can be done for a negligible fee. Why can't I avoid the 4% fee when paying someone in the same city?

This is what makes the 4% tollbooth ripe for disruption. Right now it is either 4% or "pay by cash or check." The disruption is bound to happen at some point.

I think the banks take the majority of the 4% not Visa
Title: Re: V - Visa
Post by: Castanza on June 04, 2019, 09:51:59 AM
Cash is better for taxe avoidance. That’s why many like cash.

One more reason it's going to go away over time.

Cash doesn't give you cashback rewards or points either.

I don't think cash will go away. I think it would get voted down in the supreme court as unconstitutional. Louisiana tried to do something similar in 2011 which would prevent all 2nd hand cash transactions (yard sales and stuff like that). But it was almost immediately revised to only be for cash to precious metals as it was getting called unconstitutional.
Title: Re: V - Visa
Post by: SlowAppreciation on June 04, 2019, 10:14:03 AM
Right now the fee is 4%. This is for payments in the range of $5000.

I think an international money transfer of $5000 can be done for a negligible fee. Why can't I avoid the 4% fee when paying someone in the same city?

This is what makes the 4% tollbooth ripe for disruption. Right now it is either 4% or "pay by cash or check." The disruption is bound to happen at some point.

I think the banks take the majority of the 4% not Visa

Very very rough/high-level of a $100 transaction
- $2 to issuing bank
- $.25 to payment processor
- $.20 to merchant bank
- $.13 to Visa
- merchant keeps ~$97.50
Title: Re: V - Visa
Post by: DTEJD1997 on June 04, 2019, 10:56:36 AM
Cash is better for taxe avoidance. That’s why many like cash.

One more reason it's going to go away over time.

Cash doesn't give you cashback rewards or points either.

Cash has many, Many, MANY valuable features that credit/debit cards will never have.

Years ago, I sometimes dealt with scrap equipment, buying & selling.  Unless you knew the buyer, VERY well, you would NEVER take a check or credit card.  The risk of a bouncing check or chargeback was simply too great.  With CASH a transaction is final.  There is a LOT to be said for that.

There is also not a fraud problem with cash (as long as you screen for counterfeit).  How much fraud is there with checks/credit cards?

Cash also has a different counter party risk than credit/debit cards.  You don't need anybodies approval/network working to spend/receive cash.  How many times have my credit/debit cards been denied because the fraud/back office systems of the issuer are not working properly?  What if the network decides they don't like you because of your conservative viewpoint?  OR liberal viewpoint?  Or some other belief?  Or what happens if the processor network decides they don't like the line of business you are in?  There have been reports of gun dealers/stores not being able to process credit card transactions as the bank/network decided they don't want to deal with them.

What happens if your card is bent/damaged?

I've carried cash all my adult life.  Never been robbed, never lost a significant amount. 

I used to work with younger workers who NEVER carried cash.  They would even buy $1.50 worth of snacks with a credit/debit card and would gladly pay a $.50/fee for a small transaction.  Many of them would do this EVERY day or many times a week.  I asked why they simply didn't get $50 out of every pay check.  They were petrified they "would get rolled" for that princely sum of cash.  They were also scared they might lose it or misplace it.

Over the course of a year, they probably lost AT LEAST 1 day's of work to fees for small transactions.

Finally, when I've got cash, I tend to be bit more cautious with my purchases.

So I hope cash will be around for quite a while longer, as it serves a very useful purpose that cards never will.

Title: Re: V - Visa
Post by: dwy000 on June 04, 2019, 11:08:40 AM
I've stopped counting the number of transactions where the seller charges a "credit card transaction fee" of 2-2.5% on top of the selling price (usually it's for larger ticket items).  I love my cash back but when they tack it on as an add on I almost always go for the debit transaction.  But I'm assuming many people using the "credit" part of the credit card don't have much flexibility.
Title: Re: V - Visa
Post by: Liberty on June 04, 2019, 01:00:21 PM
Cash is better for taxe avoidance. That’s why many like cash.

One more reason it's going to go away over time.

Cash doesn't give you cashback rewards or points either.

I don't think cash will go away. I think it would get voted down in the supreme court as unconstitutional. Louisiana tried to do something similar in 2011 which would prevent all 2nd hand cash transactions (yard sales and stuff like that). But it was almost immediately revised to only be for cash to precious metals as it was getting called unconstitutional.

That's not what I meant. I meant it'll keep going away progressively in an organic way as it has for the past decades, not that it's suddenly going to be banned soon or that it won't remain for some (increasingly rare) uses.
Title: Re: V - Visa
Post by: Spekulatius on June 04, 2019, 05:54:25 PM
Interesting discussion. I still think there is risk of disrupt on in this sector. sure Visa and MA only take 0.2%, but the total take from banks or CC companies  is more 3%, which is actually quite significant when we talk about larger sums. That’s why car dealers don’t take a CC’s  to pay for your car , except a down payment. Same for very small sums. So there is opportunity for disruption, which could come via Visa and MA, but if Visa would allow an alternative source, they would piss off all their customers. So I think they might be tied to the mast. But if someone were to take totally new approach, then  quite likely  the total cost of payment could be reduced to a fraction of what’s out there. I think for large payment, actually a crypto solution might work, but I have no idea. perhaps this goes via Visa or MC, but I am not sure.
Title: Re: V - Visa
Post by: RuleNumberOne on June 04, 2019, 09:08:56 PM
If expenses are $95 out of the $100, half the $5 profit is gone.

Right now the fee is 4%. This is for payments in the range of $5000.

I think an international money transfer of $5000 can be done for a negligible fee. Why can't I avoid the 4% fee when paying someone in the same city?

This is what makes the 4% tollbooth ripe for disruption. Right now it is either 4% or "pay by cash or check." The disruption is bound to happen at some point.

I think the banks take the majority of the 4% not Visa

Very very rough/high-level of a $100 transaction
- $2 to issuing bank
- $.25 to payment processor
- $.20 to merchant bank
- $.13 to Visa
- merchant keeps ~$97.50
Title: Re: V - Visa
Post by: abitofvalue on June 04, 2019, 10:01:04 PM
Interesting discussion. I still think there is risk of disrupt on in this sector. sure Visa and MA only take 0.2%, but the total take from banks or CC companies  is more 3%, which is actually quite significant when we talk about larger sums. That’s why car dealers don’t take a CC’s  to pay for your car , except a down payment. Same for very small sums. So there is opportunity for disruption, which could come via Visa and MA, but if Visa would allow an alternative source, they would piss off all their customers. So I think they might be tied to the mast. But if someone were to take totally new approach, then  quite likely  the total cost of payment could be reduced to a fraction of what’s out there. I think for large payment, actually a crypto solution might work, but I have no idea. perhaps this goes via Visa or MC, but I am not sure.

But we saw a real-world experiment of interchange being capped for Debit cards in the US around 2009.. and guess what V / MA still dominate that business but now consumers dont get rewards and banks charge for low balance checking accounts.. fees on debit cards are already capped by regulation for 4-party systems like V, MA so it seems highly unlikely they will get disintermediated. Seems to me if credit gets an interchange cap in the US (ala EU), bye bye to the rewards cards...

btw - the merchant paying 4% in card fees is probably getting additional services from his acquiror. Highly highly unlikely that 4% is the actual clean MDR.. thats probably closer to 2-2.5%. Unless there is a ton of cross-border or something weird about this merchant which makes it atypical in the grand scheme. Even Amex which has the highest MDR doesnt get 3%.

The problem an upstart has is balancing the interests of consumers, issuers and merchants. Merchants think payments should be zero margin / cost and they should get to keep all the fees. Issuers think fees should be higher and they are providing a valuable service through cards. Consumers just want ubiquitous acceptance and rewards. V/MA have shown an ability to balance these interests and manage it well enough.. plus they are ingrained, global in scale, and reliable. This is a classic 2-sided market with major network effects..  An upstart can probably appeal to one constituency - say merchants by offering really low MDRs.. but what issuer is going to sign up to issue cards for this upstart? Why would they switch unless they could get something out of it? Without issuers - how do consumers use this network? PayPal tried to do this - they had millions of online merchants and consumer payment credentials and yet found it tough going competing with V / MA in an offline world and pretty much gave up in switching to their current 'choice' initiative.

One final point - V has 60%+ operating margins. Thats because it charges for value provided not costs. Payments is a scale business. It is highly likely that V will have the lowest cost of processing transactions.. It can put pricing in response to competition.. still make money but drive a sub-scale upstart to loose money. 

The anti-trust / regulation fears are much more of a concern to me than some upstart disintermediating the incumbents.
Title: Re: V - Visa
Post by: RuleNumberOne on June 04, 2019, 11:05:06 PM
Imagine a Facebook debit card. Consumers and merchants provide their bank account, login and password information to Facebook.

Facebook subtracts from the payer, and adds to the payee's accounts. Zero fees, zero rewards.

Merchant can advertise a 3% discount with a Facebook card, or an extra 3% with V/MA. Consumers are not going to pay an extra 3% with V/MA for rewards of 1-2%.

Facebook gets valuable data. Once Facebook or someone else offers something like this, many tech companies will jump in.
Title: Re: V - Visa
Post by: Liberty on June 05, 2019, 03:39:33 AM
https://twitter.com/jerrycap/status/1136220670612975616?s=21
Title: Re: V - Visa
Post by: Liberty on June 05, 2019, 03:41:52 AM
Imagine a Facebook debit card. Consumers and merchants provide their bank account, login and password information to Facebook.

Facebook subtracts from the payer, and adds to the payee's accounts. Zero fees, zero rewards.

Merchant can advertise a 3% discount with a Facebook card, or an extra 3% with V/MA. Consumers are not going to pay an extra 3% with V/MA for rewards of 1-2%.

Facebook gets valuable data. Once Facebook or someone else offers something like this, many tech companies will jump in.

I'm sure people will flock to giving Facebook direct access to their bank accounts.
Title: Re: V - Visa
Post by: Spekulatius on June 05, 2019, 03:51:38 AM
Imagine a Facebook debit card. Consumers and merchants provide their bank account, login and password information to Facebook.

Facebook subtracts from the payer, and adds to the payee's accounts. Zero fees, zero rewards.

Merchant can advertise a 3% discount with a Facebook card, or an extra 3% with V/MA. Consumers are not going to pay an extra 3% with V/MA for rewards of 1-2%.

Facebook gets valuable data. Once Facebook or someone else offers something like this, many tech companies will jump in.

Amazon would be the most likely company to start this. Paying 2% on all their revenues for debit/CC processing is huge. They know a lot about their customers, have cloud capacity, scale and a history of going after someone else’s margin. Maybe they even would use Visa or MC infrastructure, but would they allow it? It would a significant conflict of interest with their customers.
Title: Re: V - Visa
Post by: peterHK on June 05, 2019, 06:20:35 AM
Imagine a Facebook debit card. Consumers and merchants provide their bank account, login and password information to Facebook.

Facebook subtracts from the payer, and adds to the payee's accounts. Zero fees, zero rewards.

Merchant can advertise a 3% discount with a Facebook card, or an extra 3% with V/MA. Consumers are not going to pay an extra 3% with V/MA for rewards of 1-2%.

Facebook gets valuable data. Once Facebook or someone else offers something like this, many tech companies will jump in.

Amazon would be the most likely company to start this. Paying 2% on all their revenues for debit/CC processing is huge. They know a lot about their customers, have cloud capacity, scale and a history of going after someone else’s margin. Maybe they even would use Visa or MC infrastructure, but would they allow it? It would a significant conflict of interest with their customers.

The thing this sort of logic misses is why would Amazon, as an open network, create a closed loop payment system. Same with Facebook. It works for Facebook to Facebook transactions, but what if I have a Visa card and want to do a transaction on Facebook using credit? Is Facebook going to lend me that money? Do I have to sign up for ANOTHER card?

I mean look at PayPal: uses Visa/MA rails for huge parts of their business.

Look at Apple: uses V/MA rails AND cards (Apple Card is digital only, runs using MasterCard).

Google Pay: uses MasterCard.

All these open platforms #1 want access to V/MA's hundreds of millions of users, #2, don't want to get into being rails because it's so hard; and #3, would be at a huge cost disadvantage to V/MA.

This is also why I'm not worried about the fee issue. If banks are disintermediated by Google/Apple/PayPal etc. they're already locked into using V/MA. The front end of the payment space is high speed, and evolves quickly but we've seen over and over again, the easiest way to get scale and acceptance on that front end is to use the back end that V/MA have already built.
Title: Re: V - Visa
Post by: coc on June 05, 2019, 08:11:46 AM
I agree with @PeterHK. I will also elaborate a few other points in addition to his.

If Facebook or whoever else wants to get into the credit card processing game, they have to be prepared to extend credit. That is a totally different game and I haven’t seen any proposals that any tech company wants to do that. Essentially becoming part bank. Visa/MasterCard is really a front for a cartel of thousands of credit card companies (banks).

The “debit” side seems easier to break, but has an important caveat as well: The payor and the merchant must both be on board. This has many implications.

Let’s start with the economics. For a merchant taking debit and credit, the economics on a $10 transactions might look like this:

Interchange fee (regulated under Durbin): $0.21 + .05% = $0.26
Processing fee (to First Data et al): $0.15

Total: $0.41c or 4.1%. Not cheap. However, many of these costs don’t scale if you sell higher ticket items. On a $50 transaction, that’s only 1.2%. (You can see why fast food places, gas stations, etc. struggle the most with payment processing costs).

Let’s propose that Amazon wants to “disrupt” payments to save on these fees. They’d need me, the consumer, to let them access my bank account to fund an Amazon Pay account (like a PayPal account). Then they’d need all of their merchants to have an Amazon Pay account linked to their bank accounts. Now we’re outside the V/MA ecosystem. Even then, Amazon Pay would only allow me to buy and sell via Amazon. It would be a specialized Amazon payment system.

Now let’s say they do it for free — no fees to the merchants on the Marketplace. Sounds great for the merchant. But why would I, the consumer, go through the hassle of opening an Amazon payments account - just for that one site? It would have to be because Amazon will offer me rewards - better rewards than my bank offers.

Great — so now Amazon is taking a hit to its margins on each sale to fund rewards. It will also start taking a hit on fraud losses it must manage, as well as chargebacks for disputed transactions. They would also need staff to run this whole platform, as well as huge IT costs, which would be high as a percentage of all transactions done on Amazon, in the early days before the venture scaled.

Even if Amazon did succeed in this venture, they’d only have created a system that can be used to pay merchants on Amazon. In order for Amazon Pay to escape Amazon itself — and become more attractive to me as a user — they would then have to go to merchants all around the world — millions of them — and get them to open Amazon Pay accounts, so I can spend my Amazon Bucks there. This activity is done today by merchant acquirers - not by Visa/MasterCard itself. (First Data, Worldpay, etc.) Huge effort and costs, and many years of work.

What’s the attraction to a merchant? As a merchant, I might be willing to sign on if Amazon was taking the economic hit and offering free payment processing. However:

(1) Why would Amazon help their competitors?
(2) Why would Amazon’s competitors help Amazon?

And another problem arises: Until Amazon has a monopoly, as a merchant I’d now have to manage my Amazon Pay account alongside of my old payment processing account on the V/MA/AXP rails. And until Amazon Pay scaled up huge, only a fraction of my shoppers would be paying using this method. It’s not like I have free payment processing altogether: I only have free payment processing for those payers who use Amazon Pay. (It is the old problem of building a two-sided network - and anyone attempting to do it, including Facebook, would face the same issue.)

Of course, even if that is a successful, Amazon is now managing fraud, managing merchants, etc etc.

By the end, I’m left wondering why Amazon would attempt this game at all. Yes, it would cut out the interchange fees on debit, but any vertical intergration has huge costs attached, and they are not the best player to manage it. This is Microeconomics 101, and it’s why merchants have not, in the past, been willing to do anything like Amazon Pay.

We shall see what happens, but I have a hard time seeing it. We can go through a similar analysis for Facebook, but I think they are in an even weaker position, because they can’t kickstart the network as the first Uber-Merchant, as Amazon would be able to.

I think any would- be competitor would be better off buying PayPal given its established user base, but PayPal is already heavily on the V/MA rails to avoid many of these problems, and without those rails, it simply does not have broad merchant acceptance.
Title: Re: V - Visa
Post by: RuleNumberOne on June 05, 2019, 08:41:43 AM
No credit, just debit. Facebook or Amazon offer a debit card. They leave credit to the existing system.

People would save around 1.5% by using the Facebook/Amazon/Robinhood debit card (Merchant Discount - "Rewards"). They get a higher lifestyle and earlier retirement.

Credit card users can pay 3-4% extra and collect 1-2% in "rewards."

Only people who really really need credit because their bank accounts are empty would use credit cards, the rest use debit.
Title: Re: V - Visa
Post by: mjm on June 05, 2019, 11:07:02 AM
not sure i understand your post.  how do CC users pay 3-4% more. TIA
Title: Re: V - Visa
Post by: coc on June 05, 2019, 01:37:55 PM
No credit, just debit. Facebook or Amazon offer a debit card. They leave credit to the existing system.

People would save around 1.5% by using the Facebook/Amazon/Robinhood debit card (Merchant Discount - "Rewards"). They get a higher lifestyle and earlier retirement.

Credit card users can pay 3-4% extra and collect 1-2% in "rewards."

Only people who really really need credit because their bank accounts are empty would use credit cards, the rest use debit.

If you issue a debit card, have to come up with a mechanism for merchants to accept it and consumers to use it. I still don’t understand what the value proposition is for a Facebook or Amazon card. Credit card users don’t pay more. I already have a debit card. Why do I need a new one? Zero fees - why would Facebook/Amazon try to replicate everything the processors do and lose money on it?

I think you’re making the (incorrect) assumption that the payment processing ecosystem is just a bunch of rent seekers - which has been common in Silicon Valley, and why all of the players who have entered have failed to disrupt the current system — only augmented it. (See PayPal, Square, etc.)
Title: Re: V - Visa
Post by: peterHK on June 05, 2019, 02:02:32 PM
Not to mention other issues with debit:

Visa Direct and MasterCard Send can send things 24/7/365; is AMZN going to spend on that tech? If not, then why not just use ACH.

Visa buying Earthport let them plug into ACH networks around the world, and push funds to and from accounts that are non-Visa linked. Will AMZN be able to do this without massive tech spend?

How do you get funds to your AMZN debit account? Lets say you want to take them from your bank, well you might just Visa Direct it over there, in which case, AMZN has to plug into the V rails, and V gets a transaction fee there. Lets say you want to take them back to your bank, again AMZN needs to be connected. Lets say you want to use those funds in the real world, well as we've been over in this thread, what merchant is going to accept that?

I liken it to Amex: people have to ask if merchants accept Amex. Nobody asks whether they accept Visa, it's presupposed that they do. Creating that level of ubiquity is obscenely challenging.

People seem to think V/MA just process things, but think of the complexity of moving these funds around, checking for fraud etc. I mean it's massive, the scale of what they do. It'd be almost impossible for someone to out-scale them at this point, and so where's the incentive?
Title: Re: V - Visa
Post by: Liberty on June 05, 2019, 03:59:04 PM
Like most industries that operate in the shadows, most people who aren't familiar with them assume that they must be fairly trivial to operate, replicate, or modify.

Oh, the power grid? Yeah, I'm sure we can make massive changes to it in a few years..

Oh, the financial plumbing of the whole world? Just a bunch of databases, right?
Title: Re: V - Visa
Post by: Spekulatius on June 05, 2019, 04:32:24 PM
Like most industries that operate in the shadows, most people who aren't familiar with them assume that they must be fairly trivial to operate, replicate, or modify.

Oh, the power grid? Yeah, I'm sure we can make massive changes to it in a few years..

Oh, the financial plumbing of the whole world? Just a bunch of databases, right?

I don’t think it’s simple or other, it would have been done already. However, now, we have a bunch of very savvy  and well capitalized tech tech companies which have already established their own network effects and know a lot about their customers. This is not something that existed 10 years ago.. I any case, the discussion has been quite helpful, for me at least.
Title: Re: V - Visa
Post by: Liberty on June 05, 2019, 05:32:24 PM
Like most industries that operate in the shadows, most people who aren't familiar with them assume that they must be fairly trivial to operate, replicate, or modify.

Oh, the power grid? Yeah, I'm sure we can make massive changes to it in a few years..

Oh, the financial plumbing of the whole world? Just a bunch of databases, right?

I don’t think it’s simple or other, it would have been done already. However, now, we have a bunch of very savvy  and well capitalized tech tech companies which have already established their own network effects and know a lot about their customers. This is not something that existed 10 years ago.. I any case, the discussion has been quite helpful, for me at least.

Even for big tech it's not that simple. It's a question of focus. Visa has 15,000 employees and MasterCard has 13,400 employees, and all they think about is this. Facebook and Google have 87 other priorities and some big other distractions.

Google Wallet hasn't exactly taken over the world, and while Apple Pay has done better, even that is built on existing rails. If they had to get acceptance for every point-of-sale from scratch and do the fraud detection and auditing from scratch and deal with every problem that comes up, etc, I doubt they'd have gotten anywhere. Even the upcoming Apple Card that "reinvents" the credit card is on existing rails.

Amazon has been better at entering new industries, but even that might be a tough nut to crack for them. 15bps doesn't leave a lot of margin umbrella to try to do better at a lower cost, and since most costs of such a network are fixed (hence the crazy operating leverage), they'd lose money forever before they got to critical mass, if they ever got there.
Title: Re: V - Visa
Post by: SlowAppreciation on June 05, 2019, 05:54:22 PM
Like most industries that operate in the shadows, most people who aren't familiar with them assume that they must be fairly trivial to operate, replicate, or modify.

Oh, the power grid? Yeah, I'm sure we can make massive changes to it in a few years..

Oh, the financial plumbing of the whole world? Just a bunch of databases, right?

I don’t think it’s simple or other, it would have been done already. However, now, we have a bunch of very savvy  and well capitalized tech tech companies which have already established their own network effects and know a lot about their customers. This is not something that existed 10 years ago.. I any case, the discussion has been quite helpful, for me at least.

Any would-be competitor would have to invest billions of dollars in networking infrastructure so that transactions can be processed in real-time and with practically zero failures. They would need to establish relationships—one by one—with 16,000 banks worldwide. Then they’d need to write complex software that works with each of those banks, as well as millions of payment terminals. And they would need to ensure compliance with financial laws and regulations by working with regulatory bodies in over 200 countries.

Or they could just partner with Visa for 15bps.
Title: Re: V - Visa
Post by: RuleNumberOne on June 05, 2019, 07:05:57 PM
Why does Google offer free Gmail, search, Youtube, Maps. Facebook a free social network?

Why do Google and Facebook offer free authentication to the entire Internet? This is the "login with Google" and "login with Facebook" buttons you see on websites.

How does all of this happen in "real-time", "24/7/365"?
 
How does Xoom wire transfer 1000s of dollars (international) for a $3 flat fee?


Title: Re: V - Visa
Post by: RuleNumberOne on June 05, 2019, 08:22:04 PM
Why is GOOG being investigated for antitrust for providing a free service?

Combined V-MA has one-fourth the number of employees as GOOG, but the same enterprise value.
A fraction of the expenses - be it operating or capex, but the same enterprise value.

GOOG hires 4 times more people and spends tens of billions on capex and R&D. Yet it cannot get a higher enterprise value, but instead gets investigated for anti-trust.


Like most industries that operate in the shadows, most people who aren't familiar with them assume that they must be fairly trivial to operate, replicate, or modify.

Oh, the power grid? Yeah, I'm sure we can make massive changes to it in a few years..

Oh, the financial plumbing of the whole world? Just a bunch of databases, right?

I don’t think it’s simple or other, it would have been done already. However, now, we have a bunch of very savvy  and well capitalized tech tech companies which have already established their own network effects and know a lot about their customers. This is not something that existed 10 years ago.. I any case, the discussion has been quite helpful, for me at least.

Even for big tech it's not that simple. It's a question of focus. Visa has 15,000 employees and MasterCard has 13,400 employees, and all they think about is this. Facebook and Google have 87 other priorities and some big other distractions.

Google Wallet hasn't exactly taken over the world, and while Apple Pay has done better, even that is built on existing rails. If they had to get acceptance for every point-of-sale from scratch and do the fraud detection and auditing from scratch and deal with every problem that comes up, etc, I doubt they'd have gotten anywhere. Even the upcoming Apple Card that "reinvents" the credit card is on existing rails.

Amazon has been better at entering new industries, but even that might be a tough nut to crack for them. 15bps doesn't leave a lot of margin umbrella to try to do better at a lower cost, and since most costs of such a network are fixed (hence the crazy operating leverage), they'd lose money forever before they got to critical mass, if they ever got there.
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 05:05:16 AM
Why does Google offer free Gmail, search, Youtube, Maps. Facebook a free social network?

Why do Google and Facebook offer free authentication to the entire Internet? This is the "login with Google" and "login with Facebook" buttons you see on websites.

How does all of this happen in "real-time", "24/7/365"?
 
How does Xoom wire transfer 1000s of dollars (international) for a $3 flat fee?

Apples and oranges.

Comparing free email and trillions in worldwide credit/debit transactions is like comparing a chain of dollar stores and running a bunch of airlines. The stakes and regulations and complexity are very different.
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 05:06:04 AM
Why is GOOG being investigated for antitrust for providing a free service?

Combined V-MA has one-fourth the number of employees as GOOG, but the same enterprise value.
A fraction of the expenses - be it operating or capex, but the same enterprise value.

GOOG hires 4 times more people and spends tens of billions on capex and R&D. Yet it cannot get a higher enterprise value, but instead gets investigated for anti-trust.

That's a strange way to think about all this, and I don't think it really elucidates much.
Title: Re: V - Visa
Post by: eatliftinvestgolf on June 06, 2019, 05:37:09 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.
Title: Re: V - Visa
Post by: Jurgis on June 06, 2019, 05:58:08 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 06:53:51 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

Fax machines and paper cheques are still around... Things tend to change both faster and slower than people expect.

The best way to predict whether Visa and Mastercard are at risk of being disrupted, is, IMO, whether they keep moving fast and adapting to the times, and whether they create a price umbrella under which new entrants can come in. At 15 bps, there's no space, and so far they've made a lot of the right moves (Visa has been turning its rails into a platform with bidirectional APIs that have allowed many other companies to build on top of it, strengthening its moat).
Title: Re: V - Visa
Post by: eatliftinvestgolf on June 06, 2019, 07:03:35 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks
Title: Re: V - Visa
Post by: eatliftinvestgolf on June 06, 2019, 07:05:05 AM
“if you think you know what’s going to happen to payments systems 10 years out, you are probably under some state of delusion.”  - munger
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 07:05:21 AM

banks

The same banks that blew up and were bailed out all around the world 10 years ago? You can predict them 30 years forward with "a high degree of confidence"?
Title: Re: V - Visa
Post by: Jurgis on June 06, 2019, 07:07:07 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.
Title: Re: V - Visa
Post by: eatliftinvestgolf on June 06, 2019, 07:12:13 AM

banks

The same banks that blew up and were bailed out all around the world 10 years ago? You can predict them 30 years forward with "a high degree of confidence"?


Yes, you can easily predict there will always be a bank that gathers deposits and lends money in 30 years.

Your point about blow ups is flawed because it assumes business model includes the derivatives / investment banking side and we had a once in 100 year crisis.

I don't know if the favorable features of the payments industry and Visa's business model will continue that far away.   It certainly could.
Title: Re: V - Visa
Post by: RuleNumberOne on June 06, 2019, 07:14:47 AM
I don't pick banks, Buffett picks them for me.

I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.
Title: Re: V - Visa
Post by: eatliftinvestgolf on June 06, 2019, 07:18:06 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.

My position is that it's too hard of a question in Visa' case. I don't think I need to name a single business to support the point that I made.   You are applying a higher standard because you disagree with me.  That's fine, you are welcome to disagree.

Anyway, I do have a large chunk of WFC as a 'single bank' pick and I don't think the odds of bankruptcy in 2-3 financial crises are anywhere near as high as you are suggesting.
Title: Re: V - Visa
Post by: Jurgis on June 06, 2019, 07:30:13 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.

My position is that it's too hard of a question in Visa' case. I don't think I need to name a single business to support the point that I made.   You are applying a higher standard because you disagree with me.  That's fine, you are welcome to disagree.

Anyway, I do have a large chunk of WFC as a 'single bank' pick and I don't think the odds of bankruptcy in 2-3 financial crises are anywhere near as high as you are suggesting.

I am pretty confident that you don't know where WFC will be in 30 years: what size it will be, what profitability it will have, and even if it will exist at all.

However, this argument is not resolvable, so let's leave it at that.
Title: Re: V - Visa
Post by: eatliftinvestgolf on June 06, 2019, 07:53:59 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.

My position is that it's too hard of a question in Visa' case. I don't think I need to name a single business to support the point that I made.   You are applying a higher standard because you disagree with me.  That's fine, you are welcome to disagree.

Anyway, I do have a large chunk of WFC as a 'single bank' pick and I don't think the odds of bankruptcy in 2-3 financial crises are anywhere near as high as you are suggesting.

I am confident that you don't know where WFC will be in 30 years: what size it will be, what profitability it will have, and even if it will exist at all.

However, this argument is not resolvable, so let's leave it at that.

Fair enough. Look it always comes back to price or it's not investing.

At the current price for Visa, I think you need to have greater certainty about the long-term durability of its business model than I am able to build conviction on.   It sounds like Liberty has built that conviction.  I'm not even saying that this is wrong, just that I personally can't get there.

Visa is a wonderful business that everyone knows about and I feel it is to some extent reflected in the price.  At a different price, I wouldn't apply such a high bar to the long-term durability.

It's not possible to know with certainty an exact projection of a single company, like you are posing to me as a counterfactual.  But I have a much stronger view on the long-term durability of WFC's ROE than Visa relative to its current price.
Title: Re: V - Visa
Post by: Jurgis on June 06, 2019, 07:58:02 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.

My position is that it's too hard of a question in Visa' case. I don't think I need to name a single business to support the point that I made.   You are applying a higher standard because you disagree with me.  That's fine, you are welcome to disagree.

Anyway, I do have a large chunk of WFC as a 'single bank' pick and I don't think the odds of bankruptcy in 2-3 financial crises are anywhere near as high as you are suggesting.

I am confident that you don't know where WFC will be in 30 years: what size it will be, what profitability it will have, and even if it will exist at all.

However, this argument is not resolvable, so let's leave it at that.

Fair enough. Look it always comes back to price or it's not investing.

At the current price for Visa, I think you need to have greater certainty about the long-term durability of its business model than I am able to build conviction on.   It sounds like Liberty has built that conviction.  I'm not even saying that this is wrong, just that I personally can't get there.

Visa is a wonderful business that everyone knows about and I feel it is to some extent reflected in the price.  At a different price, I wouldn't apply such a high bar to the long-term durability.

It's not possible to know with certainty an exact projection of a single company, like you are posing to me as a counterfactual.  But I have a much stronger view on the long-term durability of WFC's ROE than Visa relative to its current price.

OK, fair enough, I mostly agree with your latest thoughts, good luck.  8)
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 08:32:46 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.

How am I punting? I never claimed to be able to predict 30 years ahead with a high level of confidence.
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 08:34:49 AM

banks

The same banks that blew up and were bailed out all around the world 10 years ago? You can predict them 30 years forward with "a high degree of confidence"?


Yes, you can easily predict there will always be a bank that gathers deposits and lends money in 30 years.

Your point about blow ups is flawed because it assumes business model includes the derivatives / investment banking side and we had a once in 100 year crisis.

I don't know if the favorable features of the payments industry and Visa's business model will continue that far away.   It certainly could.

I can also predict there will be popsicle stands in 30 years; I thought the prediction was about what would happen to specific businesses, metrics relevant to whether they'll stay good businesses or not, not about the mere existence of the business model in general. If banks wipe out their equity again in the next 20 years, the fact that they still exist will be meagre consolation.

And I'm not the one who claimed the need for 30 year predictions. I can't predict 30 years ahead, I can only predict the present and work from there.
Title: Re: V - Visa
Post by: Jurgis on June 06, 2019, 08:36:31 AM
I think the hardest part about investing in Visa is not the valuation, underlying returns on capital, or the business quality, it's assessing the duration that these factors will persist in the future.  There are some excellent arguments in this thread about why the medium-term outlook looks strong, but I haven't seen anything that convinces me that the long-term outlook can be projected with a high degree of confidence.  It is truly a wonderful business today, but it's in the 'i don't know' category for me with a 30 year horizon.

Please tell me a single business where you know the outlook for 30 years with high degree of confidence.

banks

Both you and Liberty are just punting: you are not naming a single business and you are not providing outlook. Taking banks: in 30 years there will be at least 2-3 financial crises. If you pick a single bank that exists now, it might be bankrupt in 30 years.

How am I punting? I never claimed to be able to predict 30 years ahead with a high level of confidence.

Your initial answer was:

Quote
Fax machines and paper cheques are still around...

Perhaps you did not mean this as an actual prediction or answer to my question, so I withdraw my characterization.  8)
Title: Re: V - Visa
Post by: Liberty on June 06, 2019, 08:38:30 AM
Your initial answer was:

Quote
Fax machines and paper cheques are still around...

Perhaps you did not mean this as a punt, so I withdraw my characterization.  8)

I was adding to what you wrote, agreeing with you, I wasn't replying to your question. I see how it could be ambiguous the was I quoted both of you.

My meaning with that line was kind of: It's really difficult to predict how things will change. some things that you'd have thought were obviously going away are still here, and things that seemed durable are gone. But if this game was easy, everybody would do it...
Title: Re: V - Visa
Post by: Jurgis on June 06, 2019, 08:39:46 AM
Your initial answer was:

Quote
Fax machines and paper cheques are still around...

Perhaps you did not mean this as a punt, so I withdraw my characterization.  8)

I was adding to what you wrote, agreeing with you, I wasn't replying to your question. I see how it could be ambiguous the was I quoted both of you.

OK, I misunderstood what you meant.  8)
Title: Re: V - Visa
Post by: peterHK on June 07, 2019, 10:21:48 AM
Nobody knows what's going to be around in 30 years, but would I rather own a business that can for the next 10 grow earnings at a 15% CAGR and have 0 capital requirements so they return all their capital to me, or WFC that isn't growing and is capital intensive?

Seems like a pretty easy choice for me.
Title: Re: V - Visa
Post by: FiveSigma on June 07, 2019, 10:34:01 AM
Except you have to pay almost 3.5x more for the 15% EPS CAGR (27x) and risk of multiple compression with Visa vs. 5-10% EPS CAGR for WFC (8x) with likelihood of multiple expansion (or at least low risk of further compression).

Doesn't seem like an easy choice to me.
Title: Re: V - Visa
Post by: Spekulatius on June 07, 2019, 11:06:11 AM
Or GOOG which I think can do 10-14% annually and trades at <20x earnings ex cash. I think this growth rate implies that some some of the Google ventures come through. Visa is simpler because they just need to keep doing what they have been doing.
I added quite a bit too Google lately, it might be the most straightforward value proposition in tech right now. From time to time, even great businesses trade at not so great multiples. For Visa, that was the case last December.
Title: Re: V - Visa
Post by: peterHK on June 07, 2019, 12:19:21 PM
Except you have to pay almost 3.5x more for the 15% EPS CAGR (27x) and risk of multiple compression with Visa vs. 5-10% EPS CAGR for WFC (8x) with likelihood of multiple expansion (or at least low risk of further compression).

Doesn't seem like an easy choice to me.

As I believe Terry Smith said: humans are exceptionally bad at understanding the power of compounding.
Title: Re: V - Visa
Post by: Liberty on June 07, 2019, 01:58:57 PM
Except you have to pay almost 3.5x more for the 15% EPS CAGR (27x) and risk of multiple compression with Visa vs. 5-10% EPS CAGR for WFC (8x) with likelihood of multiple expansion (or at least low risk of further compression).

Doesn't seem like an easy choice to me.

People were saying the same thing 5 years ago, and what happened is that it's WFC that got multiple compression and wasn't as good a business as it seemed, and V that got multiple expansion (partly because the power of its business model became clearer in the meantime). Can't say what will happen in the future, but good businesses that stay good tend to keep fairly high multiples because the higher ROIC deserves it, to the great sadness of traditional value investors who can't see paying past 10-15x for anything even if it's the best business in the world (meanwhile Buffett is ready to pay nice multiples for things like PCP or even coke back in the day, and Ted and Todd are buying Visa and Mastercard).
Title: Re: V - Visa
Post by: coc on June 07, 2019, 08:28:46 PM
What I don’t understand about this discussion is there’s no reason you can’t buy things and watch them.

There is no business I can think of that cannot be screwed up to the point of extinction in the next thirty years, with bad enough management. All it takes is some CEO to make a leveraged acquisition.

However this doesn’t mean one cannot buy things that tend to change rather slowly and watch them carefully.

Let’s take the newspapers. They were certainly victims of technology change and business disruption. But did it happen overnight? I recall Buffett comments from the mid 90s where he discussed the ongoing disruption of newspapers.

So what’s the point of this argument? Of course no one knows exactly what Visa, or Wells Fargo for that matter, will look like in 30 years. You try to obtain a margin of safety and then you watch them year by year. In what area of business can you realistically invest money and go to sleep for 30 years?

The idea is to try to own things that change slowly. Beanie babies went from popular to toast within a year. Newspapers took 20 years. All the banks that failed in the 00s slowly built up risk, over several years. Berkshire sold Fannie and Freddie due to discomfort 6 years before they failed!

It seems like there is no way around this reality of investing. Berkshire itself could be very badly damaged by bad management, especially of the insurance division.
Title: Re: V - Visa
Post by: merkhet on June 08, 2019, 06:53:09 AM
What I don’t understand about this discussion is there’s no reason you can’t buy things and watch them.

There is no business I can think of that cannot be screwed up to the point of extinction in the next thirty years, with bad enough management. All it takes is some CEO to make a leveraged acquisition.

However this doesn’t mean one cannot buy things that tend to change rather slowly and watch them carefully.

Let’s take the newspapers. They were certainly victims of technology change and business disruption. But did it happen overnight? I recall Buffett comments from the mid 90s where he discussed the ongoing disruption of newspapers.

So what’s the point of this argument? Of course no one knows exactly what Visa, or Wells Fargo for that matter, will look like in 30 years. You try to obtain a margin of safety and then you watch them year by year. In what area of business can you realistically invest money and go to sleep for 30 years?

The idea is to try to own things that change slowly. Beanie babies went from popular to toast within a year. Newspapers took 20 years. All the banks that failed in the 00s slowly built up risk, over several years. Berkshire sold Fannie and Freddie due to discomfort 6 years before they failed!

It seems like there is no way around this reality of investing. Berkshire itself could be very badly damaged by bad management, especially of the insurance division.

+1
Title: Re: V - Visa
Post by: SHDL on June 08, 2019, 07:07:07 AM
What I don’t understand about this discussion is there’s no reason you can’t buy things and watch them.

There is no business I can think of that cannot be screwed up to the point of extinction in the next thirty years, with bad enough management. All it takes is some CEO to make a leveraged acquisition.

However this doesn’t mean one cannot buy things that tend to change rather slowly and watch them carefully.

Let’s take the newspapers. They were certainly victims of technology change and business disruption. But did it happen overnight? I recall Buffett comments from the mid 90s where he discussed the ongoing disruption of newspapers.

So what’s the point of this argument? Of course no one knows exactly what Visa, or Wells Fargo for that matter, will look like in 30 years. You try to obtain a margin of safety and then you watch them year by year. In what area of business can you realistically invest money and go to sleep for 30 years?

The idea is to try to own things that change slowly. Beanie babies went from popular to toast within a year. Newspapers took 20 years. All the banks that failed in the 00s slowly built up risk, over several years. Berkshire sold Fannie and Freddie due to discomfort 6 years before they failed!

It seems like there is no way around this reality of investing. Berkshire itself could be very badly damaged by bad management, especially of the insurance division.

Yup, this along with appropriate diversification are all you really need for (company specific) risk control. No need for every single stock in your portfolio to have near-zero downside risk.

And even if you are going to make a huge bet on something like V/MA and not pay attention for a few years you can always buy some puts to limit your downside.
Title: Re: V - Visa
Post by: chrispy on June 08, 2019, 08:05:40 AM
Great points and thanks for everyone's contributions.

With great companies at higher evaluations I find buying a 1/3 full position size is a comfortable way to start. If things stay rosy you participate in the upside and if something happens either it was not a big impairment or you have the opportunity to go all in.
Title: Re: V - Visa
Post by: Spekulatius on June 08, 2019, 10:17:18 AM
I agree with above. A 30 year time horizon is too fear of a stretch. I believe Buffet uses 10 year time horizons for a selected few businesses that he believes he understands well, based on the writings in the book “The Warren Buffet way”. I think we can all do very very well just looking ahead 5 years and reiterating as time goes by.
Title: Re: V - Visa
Post by: Liberty on June 11, 2019, 05:08:06 AM
Speaking of the B2B opportunity:

https://www.businesswire.com/news/home/20190611005296/en/Visa-B2B-Connect-Launches-Globally
Title: Re: V - Visa
Post by: Liberty on June 12, 2019, 09:11:05 AM
Visa CEO on B2B:

Quote
the B2B space is 2 segments, it's the traditional carded segment, which we think is about still $20 trillion opportunity. We're the market leader in that segment. It's 12% of our charge volume or purchase volume. It is growing over the last 3 years faster than our consumer volume has grown. It's about $1 trillion on an annualized basis of EVs. And in most countries, where we have a business in B2B, we are the market leader in that business. And we have a lot of the tools necessary, whether it's travel cards or corporate cards or procurement cards, virtual cards, which we've gotten -- we had announced the deal with Wax earlier in the year, we more recently announced deals with Sabre and Ixaris in Europe to get deeper into the virtual card business.

So I would look at that carded opportunity, where, as I said, we have about $1 trillion, it's a $20 trillion opportunity as a ready now opportunity. And it's really about making sure that we are getting more and more financial institutions to recognize the importance of this segment and get behind it.

The other segment is the kind of AR, AP integration segment, where we think it's about $80 trillion of funds flow that go -- today goes through checks and wire and ACH systems tend to be high tickets, lower volume higher ticket types of transactions. That space is tougher. It's nonhomogeneous, it can be different by segments. And it's also tricky because it's not just about the payment flow. If you're going to be successful in that space, you've got to bring other value-added and make sure that you're passing enough information, you're providing the right analytics, you've got compliance reporting, you've got usage reporting and other things that's going to be useful to the client.

Visa Direct:

Quote
Visa Direct … the capability [to] allows funds to be pushed to bank accounts. It's grown 100%. it's moving from being a concept to a pilot to a real contributing part of our business. There are number of use cases. P2P is the first one that really started it going. Visa is powering most of the big P2P systems in the United States, Zelle, Square Cash, Venmo, Apple's New P2P capability with Apple Cash, are all powered by our rail. So when you move money to me, any one of those systems, those -- that money is moving on Visa's rails and we're being paid for it.

Visa Europe:

Quote
We're past a very robust integration exercise that required position rationalization, expense rationalization, redoing a whole boatload of contracts and moving them from rebates to incentives, a huge technology migration, a lot of people changes, probably 3/4 of our management team in Europe is different. And by the way, all through that, we performed well. The business performed well. The transaction was more accretive, more quickly than we estimated and told investors that it would be. [...]
we're putting a lot more resources into countries on the continent. There's a lot of opportunity there. If you look at a country like Germany, which is less than 12% of their PCE is -- on any form digital electronic payment, it's still a heavy cash society [...] We're focused on countries like Italy and Spain, Poland. If you look at those 3 countries together, they add up to more PCE than the PCE of Germany. So there's -- and they're all in the 30s somewhere in terms of percent penetration of PCE and that's carded or electronic.

e-Commerce:

Quote
E-commerce in any given month, as I go back and look over the numbers, grows between 3 and 4x face-to-face. They just have much higher growth rate. And then for us, we pick up 2x plus the share of a -- in the e-commerce world than we do in the face-to-face well because cash isn't an option. So those 2 factors alone make it really, really attractive.

Contactless as a way to convert low-value transactions to cards:

Quote
I think that contactless is going to be a big stimulant, it's going to get used to people pulling the card out for low-value transactions. And a lot of that is 30% or 35% that have PCE in the United States that's not -- that's still on cash as these low-value items and gets people in the habit of just pulling it out on any transaction and not having to go to a reflex of taking out cash if it's less than $10.

Visa CFO:

Quote
history is littered with the carcasses of companies that don't think anything could go wrong, so we operate with a very high level of paranoia at Visa. The most important thing is to ensure that Visa is providing solutions and is relevant as the world changes.

Quote
Q: Can you keep growing?
A: I'll just lay out the components of what drives growth in our business and why we remain optimistic that growth rates can be high going forward. At the heart of it, our business is enabling consumer payments, and that's been the business -- that's been our core business for a long time. And that is driven essentially by 3 variables in terms of how much you can grow. Variable #1, of course, is the pace at which the global economy grows. Personal consumption expenditures generally grow in line with nominal GDP growth around the world. So in there is real growth as well as what your expectations for inflation are. That's the baseline. The exciting thing of our business has been that we've been able to grow at probably twice that rate, and sometimes more than that, driven by the fact that we are in the business of eliminating cash. Killing cash, as Al Kelly said most recently, is job 1. And the ability to digitize cash has allowed us to grow significantly faster than what nominal growth in GDP would have allowed us to. ...

But beyond that, what's even more exciting is in the last few years, we opened up what we call the whole set of new payment flows. And this is only just the beginning because with the advent of Visa Direct, which is a capability in -- it's more a capability than, let's say, a line of business, we can now move money both into and out of bank accounts and we can move money between any 2 nodes in our network, which is a massive expansion of capability that allows us to get into, as I said earlier, person-to-person payments, into disbursements of which there are a whole range. We can revolutionize payroll, we can revolutionize insurance payments. There's a whole range of possibilities that are only just getting going. And then there is the entire world of B2B, which again is now ripe for a whole range of solutions. So when you layer on sort of the fact that the traditional business continues to have all these growth drivers, and you put on top of that the opportunity opened up by new payment flows, it's a very exciting time in our history.

Contactless "revolution" and rate of adoption:

Quote
contactless seems like an unglamorous kind of topic. But frankly, and the reason we talk about it so much is we think it's a revolution. [...] we have never seen consumers adopt a new way of payment as fast as they have adopted contactless wherever it has been made available. We saw it in Australia. Over 90% of payments are now contactless in Australia. [...] So once the whole thing falls into place, which takes about 2 or 3 years, it goes from 0 to 90 in a year or 2. The adoption is extraordinary and the benefits are also extraordinary. [...] they start using their cards for many, many, many more transactions and essentially eliminate cash. It is almost like the final nail in the coffin of cash because at this point, cash becomes a real nuisance versus just tapping your card. And then third, merchants love it because it speeds up lines

Getting money from anywhere to anywhere:

Quote
Earthport is now connected into 88 countries. And so we now access 99% of bank accounts in the top 50 markets. [...] our goal has been to get to every bank account on a global basis and be the network of networks. So think about it as you want to get your money somewhere. Don't worry about it, just give it to us and we'll get it there. And if that means that it doesn't ride specifically on our rail the entire way, it's okay.
Title: Re: V - Visa
Post by: coc on June 12, 2019, 10:52:37 AM
“Visa is powering most of the big P2P systems in the United States, Zelle, Square Cash, Venmo, Apple's New P2P capability with Apple Cash, are all powered by our rail. So when you move money to me, any one of those systems, those -- that money is moving on Visa's rails and we're being paid for it.”

I’m not sure how you could more strongly describe the strength of this business even in an age of technological disruption. Everyone is still building on top of them.
Title: Re: V - Visa
Post by: Pauly on June 12, 2019, 11:40:50 AM
A great thing about V/MA is that they've had a 50 year head start on everyone else who's trying to get into payments.
It's like they were just waiting for the world to get to the point where their service could be used to its full potential.
Title: Re: V - Visa
Post by: Jerry Capital on June 12, 2019, 08:44:27 PM
Best businessss on the planet
Title: Re: V - Visa
Post by: peterHK on June 13, 2019, 07:52:59 AM
“Visa is powering most of the big P2P systems in the United States, Zelle, Square Cash, Venmo, Apple's New P2P capability with Apple Cash, are all powered by our rail. So when you move money to me, any one of those systems, those -- that money is moving on Visa's rails and we're being paid for it.”

I’m not sure how you could more strongly describe the strength of this business even in an age of technological disruption. Everyone is still building on top of them.

BuT 25x eArnInGs tHoUgh...

In all seriousness V/MA are the two businesses along with BAM I sleep at night the best with.
Title: Re: V - Visa
Post by: Pauly on June 13, 2019, 10:41:19 AM
“Visa is powering most of the big P2P systems in the United States, Zelle, Square Cash, Venmo, Apple's New P2P capability with Apple Cash, are all powered by our rail. So when you move money to me, any one of those systems, those -- that money is moving on Visa's rails and we're being paid for it.”

I’m not sure how you could more strongly describe the strength of this business even in an age of technological disruption. Everyone is still building on top of them.

BuT 25x eArnInGs tHoUgh...

In all seriousness V/MA are the two businesses along with BAM I sleep at night the best with.

Indeed. V has grown to be my largest position (~20% of portfolio), but I don't see a reason to sell any of it, yet.  I also hold BAM but I have to put a lot more faith in management there. Visa I think could do well with a ham sandwich in charge.
Title: Re: V - Visa
Post by: Jerry Capital on June 13, 2019, 10:43:46 AM
I think that was true of the last 5 years but what both have been doing over the last five years in preparation for the next 10 to 20 seems to be much better than a ham sandwich and I'm not sure just anyone would have prepped both companies for the coming future so well.
Title: Re: V - Visa
Post by: Pauly on June 13, 2019, 11:10:12 AM
Oh definitely. They've done very well at not getting out-flanked by the competition. But as they're a toll collector on millions of transactions a day I don't really have to worry about Al Kelly getting hit by a bus...although I certainly don't wish it on him!
Title: Re: V - Visa
Post by: Liberty on June 25, 2019, 04:32:20 AM
https://www.businesswire.com/news/home/20190625005454/en/Visa-Acquire-Rambus-Payments-Portfolio
Title: Re: V - Visa
Post by: UK on July 06, 2019, 09:35:03 PM
It seems everybody agrees V business is wonderful, but what is an appropriate valuation/multiple ranges for it? Is there any price/multiple for which you would sell or at least don’t buy V? Would you still hold it if it sells tomorrow for 40x next year earnings? 60x? More?
Title: Re: V - Visa
Post by: peterHK on July 07, 2019, 05:12:37 PM
It seems everybody agrees V business is wonderful, but what is an appropriate valuation/multiple ranges for it? Is there any price/multiple for which you would sell or at least don’t buy V? Would you still hold it if it sells tomorrow for 40x next year earnings? 60x? More?

A business growing 8% a year with 30-40% ROIC's and a 9-10% WACC has a justified P/E in the mid 30's range.
Title: Re: V - Visa
Post by: Liberty on July 08, 2019, 06:14:31 AM
It seems everybody agrees V business is wonderful, but what is an appropriate valuation/multiple ranges for it? Is there any price/multiple for which you would sell or at least don’t buy V? Would you still hold it if it sells tomorrow for 40x next year earnings? 60x? More?

A business growing 8% a year with 30-40% ROIC's and a 9-10% WACC has a justified P/E in the mid 30's range.

More than that, actually:

https://twitter.com/LibertyRPF/status/1146507357192695809

(https://pbs.twimg.com/media/D-k2GPQXUAURX7q.jpg:large)

But the question always is, how sustainable the growth is and how strong the moat is. That's judgement calls that will impact the inputs of the DCF...
Title: Re: V - Visa
Post by: peterHK on July 08, 2019, 06:22:02 AM
It seems everybody agrees V business is wonderful, but what is an appropriate valuation/multiple ranges for it? Is there any price/multiple for which you would sell or at least don’t buy V? Would you still hold it if it sells tomorrow for 40x next year earnings? 60x? More?

A business growing 8% a year with 30-40% ROIC's and a 9-10% WACC has a justified P/E in the mid 30's range.

More than that, actually:

https://twitter.com/LibertyRPF/status/1146507357192695809

(https://pbs.twimg.com/media/D-k2GPQXUAURX7q.jpg:large)

But the question always is, how sustainable the growth is and how strong the moat is. That's judgement calls that will impact the inputs of the DCF...

PCE grows at 5%, cash to card/online + B2B gets you 2-3% on top of that at least + operating leverage (incremental margins 90%+).

Visa is unique in that it's sustainable growth is probably 5%, and they've got decade long tailwinds that get you over 8% without too much trouble.
Title: Re: V - Visa
Post by: Liberty on July 08, 2019, 06:25:26 AM
It seems everybody agrees V business is wonderful, but what is an appropriate valuation/multiple ranges for it? Is there any price/multiple for which you would sell or at least don’t buy V? Would you still hold it if it sells tomorrow for 40x next year earnings? 60x? More?

A business growing 8% a year with 30-40% ROIC's and a 9-10% WACC has a justified P/E in the mid 30's range.

More than that, actually:

https://twitter.com/LibertyRPF/status/1146507357192695809

(https://pbs.twimg.com/media/D-k2GPQXUAURX7q.jpg:large)

But the question always is, how sustainable the growth is and how strong the moat is. That's judgement calls that will impact the inputs of the DCF...

PCE grows at 5%, cash to card/online + B2B gets you 2-3% on top of that at least + operating leverage (incremental margins 90%+).

Visa is unique in that it's sustainable growth is probably 5%, and they've got decade long tailwinds that get you over 8% without too much trouble.

I'm sorry, I wasn't precise enough in my previous message.

I meant that if you truly have "A business growing 8% a year with 30-40% ROIC's and a 9-10% WACC has a justified P/E in the mid 30's range" long-term, it's worth more than mid-30s P/E.

The 20-30% sustainable delta with WACC that you mention is gigantic.
Title: Re: V - Visa
Post by: DirtFloorPoor on July 10, 2019, 06:35:23 AM
If the long-term EPS growth rate is 8% for a business with 30%-40% ROIC (and they retain all earnings) then ROIC will decline over time and PE multiples will compress. Consistent buybacks (which are effectively dividends for this math) means the company is not retaining all of its earnings - this is case for V/MA - will drive EPS growth above the long-term net income growth rate and delay multiple compression. Just my 2 cents.
Title: Re: V - Visa
Post by: bizaro86 on July 10, 2019, 06:38:53 AM
If the long-term EPS growth rate is 8% for a business with 30%-40% ROIC (and they retain all earnings) then ROIC will decline over time and PE multiples will compress. Consistent buybacks (which are effectively dividends for this math) means the company is not retaining all of its earnings - this is case for V/MA - will drive EPS growth above the long-term net income growth rate and delay multiple compression. Just my 2 cents.

That also means there is some additional downside to a high multiple, as it will lower eps earnings growth. Because they can buy back less shares with their fcf, it adds less to their growth rate.
Title: Re: V - Visa
Post by: Liberty on July 10, 2019, 08:15:03 AM
If the long-term EPS growth rate is 8% for a business with 30%-40% ROIC (and they retain all earnings) then ROIC will decline over time and PE multiples will compress. Consistent buybacks (which are effectively dividends for this math) means the company is not retaining all of its earnings - this is case for V/MA - will drive EPS growth above the long-term net income growth rate and delay multiple compression. Just my 2 cents.

Good point, I was thinking of revenue growth for some reason, which through operating leverage and high incremental margins is lower than EPS growth in these businesses..
Title: Re: V - Visa
Post by: John Hjorth on July 10, 2019, 09:49:13 AM
Off topic:

Welcome on CoBF, DirtFloorPoor! [ : - ) ]

-Great starting post!

-Now back to topic again.
Title: Re: V - Visa
Post by: Liberty on July 17, 2019, 05:00:18 AM
https://www.pymnts.com/news/partnerships-acquisitions/2019/visa-acquires-germany-based-payworks/
Title: Re: V - Visa
Post by: brk64311 on July 18, 2019, 09:01:48 AM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.
Title: Re: V - Visa
Post by: KCLarkin on July 18, 2019, 09:34:41 AM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.

Yes. That's why the duration of growth (and ROIC) (what Mauboussin calls Competitive Advantage Period) is so important. And that's why Visa and MC were undervalued for so long. Investors were either underestimating the durability of the growth or ignoring it altogether.

http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/cap.pdf

Title: Re: V - Visa
Post by: Liberty on July 18, 2019, 09:44:50 AM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.

Yeah, it's not intended to be used rigidly, but only as a guide to understand the relationship between various variables.
Title: Re: V - Visa
Post by: LC on July 18, 2019, 10:24:40 AM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.

Yes. That's why the duration of growth (and ROIC) (what Mauboussin calls Competitive Advantage Period) is so important. And that's why Visa and MC were undervalued for so long. Investors were either underestimating the durability of the growth or ignoring it altogether.

http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/cap.pdf

Thanks for posting this, I look forward to reading.
Title: Re: V - Visa
Post by: Jurgis on July 18, 2019, 11:27:26 AM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.

Yes. That's why the duration of growth (and ROIC) (what Mauboussin calls Competitive Advantage Period) is so important. And that's why Visa and MC were undervalued for so long. Investors were either underestimating the durability of the growth or ignoring it altogether.

http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/cap.pdf

Right. But can you really estimate CAP beyond 10 years or so?

I know people will keep telling me that "nothing will change with V/MA/banks in 10+ years" (TM), so I'll respond that that's just status quo bias.  ;D
Title: Re: V - Visa
Post by: KCLarkin on July 18, 2019, 12:37:02 PM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.

Yes. That's why the duration of growth (and ROIC) (what Mauboussin calls Competitive Advantage Period) is so important. And that's why Visa and MC were undervalued for so long. Investors were either underestimating the durability of the growth or ignoring it altogether.

http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/cap.pdf

Right. But can you really estimate CAP beyond 10 years or so?

I know people will keep telling me that "nothing will change with V/MA/banks in 10+ years" (TM), so I'll respond that that's just status quo bias.  ;D

I'll let Mauboussin answer that question (he will probably tell you to invert -- the stock price tells you Mr. Market's prediction for CAP and then you just have to bet on the over/under). At current valuation,  this is probably close to a toss-up. Forced to bet, I'd say current price is undervaluing the CAP. The issue with the current price is that it is likely very undervalued relative to earnings 10 or 20 years out. But because so much of the valuation is based on earnings 5+ years in the future, there is potential for a painful drawdown.
Title: Re: V - Visa
Post by: Jurgis on July 18, 2019, 01:06:20 PM
I think the table above should be used for illustrative purpose only, i.e. it demonstrates the directional relationship of ROIC, PE, growth rate. I am not sure if you can use it to justify actual PEs in the market place as the model assumes perpetual earning growth rate. For example, if you assume earning growth at 8% for the next 20-years but dropping to 4% thereafter to perpetuity, the PE using the same framework will be something like 20, vs 39 in the table.  Happy if anyone points out if I am missing something.

Yes. That's why the duration of growth (and ROIC) (what Mauboussin calls Competitive Advantage Period) is so important. And that's why Visa and MC were undervalued for so long. Investors were either underestimating the durability of the growth or ignoring it altogether.

http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/cap.pdf

Right. But can you really estimate CAP beyond 10 years or so?

I know people will keep telling me that "nothing will change with V/MA/banks in 10+ years" (TM), so I'll respond that that's just status quo bias.  ;D

I'll let Mauboussin answer that question (he will probably tell you to invert -- the stock price tells you Mr. Market's prediction for CAP and then you just have to bet on the over/under). At current valuation,  this is probably close to a toss-up. Forced to bet, I'd say current price is undervaluing the CAP. The issue with the current price is that it is likely very undervalued relative to earnings 10 or 20 years out. But because so much of the valuation is based on earnings 5+ years in the future, there is potential for a painful drawdown.

I agree with you though I'm probably less positive about earnings 10 or 20 years out.  8)

Edit: there are also questions about reinvestment returns. E.g. the purchase mentioned upthread ( https://www.pymnts.com/news/partnerships-acquisitions/2019/visa-acquires-germany-based-payworks/ ) will possibly bring positive returns, but it seems to be in more competitive area with possibly worse growth and I'd guess worse CAP (if taken separately) than main V business. If that's how earnings are reinvested, you may get worse results going 10 - 20 years out than if you looked at main business CAP. (Again not saying it was bad acquisition, but using it to illustrate the point  8) ).
Title: Re: V - Visa
Post by: SlowAppreciation on July 21, 2019, 04:30:32 AM
I put together a quick Visa valuation model if anyone is interested. You can plug in your own assumptions for:
Original: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/edit?usp=sharing
If you want a copy: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/copy

Cells highlighted in green are editable once you make your own copy.
Title: Re: V - Visa
Post by: Liberty on July 21, 2019, 06:45:22 AM
I put together a quick Visa valuation model if anyone is interested. You can plug in your own assumptions for:
  • payment volume growth
  • transaction volume growth
  • service fee yield
  • data processing fee per transaction
  • operating margin
  • etc.
Original: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/edit?usp=sharing
If you want a copy: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/copy

Cells highlighted in green are editable once you make your own copy.

Interesting, thanks
Title: Re: V - Visa
Post by: Jurgis on July 21, 2019, 08:27:02 AM
I put together a quick Visa valuation model if anyone is interested. You can plug in your own assumptions for:
  • payment volume growth
  • transaction volume growth
  • service fee yield
  • data processing fee per transaction
  • operating margin
  • etc.
Original: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/edit?usp=sharing
If you want a copy: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/copy

Cells highlighted in green are editable once you make your own copy.

Thanks.
Can you elaborate on "International"? Is that percentage of cross-border transactions?
Title: Re: V - Visa
Post by: SlowAppreciation on July 22, 2019, 07:08:55 AM
I put together a quick Visa valuation model if anyone is interested. You can plug in your own assumptions for:
  • payment volume growth
  • transaction volume growth
  • service fee yield
  • data processing fee per transaction
  • operating margin
  • etc.
Original: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/edit?usp=sharing
If you want a copy: https://docs.google.com/spreadsheets/d/138Ai2ifYT6jyo6v-ur8ASO0r-FycLlsdtFbr8Xj6W4k/copy

Cells highlighted in green are editable once you make your own copy.

Thanks.
Can you elaborate on "International"? Is that percentage of cross-border transactions?

Harder to estimate than the other revenue sources because I don't think Visa explicitly breaks out what % of transactions are cross border, their payment volume or yield. I've seen estimates that the yield is around 1%, but still kind of a guess.

So this is just estimating growth in revenue, rather than the underlying drivers (payment and transaction volume).
Title: Re: V - Visa
Post by: Jurgis on July 22, 2019, 08:32:33 AM
Thanks. I "optimistically" bumped CAGR to 15/15/10 and PE to 25. That yields 11.3% return. Not spectacular.
Bumping PE to 30 yields 14.2% return. That would probably encompass the expectation of longer and stronger competitive advantage. Leaving PE at 25 and bumping the year to 2030, yields only 12.4% though.

Anyway, it's interesting.  8)
Title: Re: V - Visa
Post by: Liberty on July 23, 2019, 01:41:01 PM
Q2: https://s1.q4cdn.com/050606653/files/doc_financials/2019/Q3/Visa-Inc-Q3-2019-Financial-Results.pdf

https://s1.q4cdn.com/050606653/files/doc_financials/2019/Q3/Visa-Inc-Q3-2019-Financial-Results-Presentation.pdf
Title: Re: V - Visa
Post by: SlowAppreciation on July 24, 2019, 03:55:13 AM
https://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-of-visa
Title: Re: V - Visa
Post by: Liberty on July 24, 2019, 05:30:28 AM
https://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-of-visa

Thank you
Title: Re: V - Visa
Post by: SlowAppreciation on August 05, 2019, 12:35:37 PM
https://www.wsj.com/articles/fed-to-create-payments-system-to-speed-money-transfers-11565026200?mod=hp_lead_pos4
Title: Re: V - Visa
Post by: nspo on August 21, 2019, 11:15:16 AM
I'm seeing overall market share in credit cards/payments changing hands at about 1.5% a year. V has a foothold on 50-55% of this market and growing (Mauboussin's CAP is expanding).

To simplify the CAP equation I used (market share/change in total market share). Intuitively, this is why companies like KO sell at such high multiples... the product is used more frequently and is less likely to experience change. Using this exercise on V we find the width of the MOAT being 30+ years. I think this is better used for illustrative purposes rather than absolute. Nonetheless, 10+ years of earning 4x your cost of capital sounds good to me :) 

BTW.. my forward yield calculation for V is roughly 13%
Title: Re: V - Visa
Post by: orthopa on August 23, 2019, 08:51:45 AM
https://www.wsj.com/articles/fed-to-create-payments-system-to-speed-money-transfers-11565026200?mod=hp_lead_pos4

Anyone seeing this as a long term problem? This seems to be on the other side of the consumer ie the consumer getting paid not paying. May compete with Visa Direct eventually?
Title: Re: V - Visa
Post by: Liberty on September 18, 2019, 10:05:33 AM
Thread on the history of the credit card networks:

https://twitter.com/arampell/status/1174359694950842368
Title: Re: V - Visa
Post by: gurpaul88 on September 19, 2019, 03:12:08 AM
Nice. Thanks Liberty
Title: Re: V - Visa
Post by: samwise on September 19, 2019, 07:28:37 PM
I'm seeing overall market share in credit cards/payments changing hands at about 1.5% a year. V has a foothold on 50-55% of this market and growing

Which competitors are losing share to Visa? MasterCard seems to be doing well, so I don’t think it’s them. Or do you mean Visa is taking share from cash and checks?
Title: Re: V - Visa
Post by: UK on September 24, 2019, 12:48:45 AM
https://www.wsj.com/articles/the-coming-currency-war-digital-money-vs-the-dollar-11569204540?mod=rsswn

"A national digital currency managed on a single network could allow money to change hands almost instantly. Most bitcoin transactions, for instance, settle within 10 minutes. With a digital currency, transactions could happen in real time, and fees would be lower or nonexistent."

"The one that might beat them all to the punch is the People’s Bank of China. The PBOC is expected to launch a digital version of China’s national currency, the yuan, later this year or early in 2020. If it does, it would be the first major global currency to become digitized.The benefits of digitization could be myriad. In addition to faster and cheaper money transfers across borders, a survey conducted by the International Monetary Fund found that central banks are looking at benefits like lower costs, more efficient monetary policy, blunting competition from bitcoin and its peers, and offering a risk-free payment network to the public."

Could such things somehow change situation for V/MA in the future?

Title: Re: V - Visa
Post by: Liberty on October 10, 2019, 10:26:13 AM
New post on Visa and Mastercard (part 3 of a series), subscription required:

https://www.scuttleblurb.com/vma3/
Title: Re: V - Visa
Post by: Liberty on October 24, 2019, 01:37:50 PM
Visa Q3:

https://s1.q4cdn.com/050606653/files/doc_financials/2019/q4/Visa-Inc.-Q4-2019-Financial-Results-Presentation.pdf
Title: Re: V - Visa
Post by: Spekulatius on October 24, 2019, 03:22:28 PM
Visa Q3:

https://s1.q4cdn.com/050606653/files/doc_financials/2019/q4/Visa-Inc.-Q4-2019-Financial-Results-Presentation.pdf

Interesting - their revenue grew faster (13%) than transaction volume (11%) and payment volume (7%). So it seems that average transaction size is down, but they still are able to charge more for each.
Title: Re: V - Visa
Post by: mjs111 on October 25, 2019, 01:13:27 PM
About 40% of revenue is service revenue and that's based on payments volume of the previous quarter (Q3 in this case) and growth for that quarter was up 9%, so that can also explain how revenue in the current quarter can outpace payments volume in the current quarter (without charging more). The 41% of revenue that was service revenue this quarter was up 9%, matching the payments volume growth from last quarter.

Second, a new revenue accounting standard (ASC 606) boosted reported revenue by 3.2 percentage points. Backing that out revenue would have been up 9.8%.  I don't know if ASC 606 would also have affected the transaction volume or payment volume stats, management didn't detail that out. Adding back in the 2 percentage point headwind from forex (since payment volume is always reported in constant dollars), adjusted, constant dollar revenue growth was more like 11.8% and not 13%.

Last, there's a revenue segment called "Other Revenues." While it only consists of about 5.6% of revenue, it was up 35% year over year.  Other revenue is "license fees for use of the Visa brand, fees for account holder services, certification and licensing, and other activities related to our acquired entities," according to the 10-K.  So this is revenue that wouldn't be tied strictly to individual transactions. Management said this segment was heavily impacted positively by ASC 606 changes.

These things could explain a good chunk of the difference between revenue growth and payments volume growth (without having to charge more per transaction). Next quarter we'll have lapped the transition to ASC 606 so hopefully things will be more clear.

Mike
Title: Re: V - Visa
Post by: Liberty on November 05, 2019, 12:26:04 PM
https://investor.visa.com/news/news-details/2019/Visa-Statement-on-Tencents-Intent-to-Support-International-Card-Schemes-into-Mobile-Wallet/default.aspx
Title: Re: V - Visa
Post by: gary17 on November 05, 2019, 02:30:30 PM
is this good news or bad news for V and MA?
Title: Re: V - Visa
Post by: Liberty on November 06, 2019, 07:42:11 AM
is this good news or bad news for V and MA?

Good news. Potential for more (still limited) access in China.

In other news:

Quote
NEW YORK (AP) -- New York City's police commissioner will be going to work for Visa Inc. on Dec. 2. The company said in a statement Wednesday that James O'Neill will be a senior vice president and global head of physical security.
Title: Re: V - Visa
Post by: chesko182 on December 03, 2019, 01:21:46 PM
https://theweek.com/articles/850232/why-are-all-paying-tax-credit-card-companies

no opinions on this, but thought I would share to get some of yours (who follow this closer than I do)
Title: Re: V - Visa
Post by: Liberty on December 03, 2019, 01:48:47 PM
https://theweek.com/articles/850232/why-are-all-paying-tax-credit-card-companies

no opinions on this, but thought I would share to get some of yours (who follow this closer than I do)

Don't have time to read all that right now, but after a bit of skimming, sounds like anti-capitalist/zero-sum fallacy to me.

Quote
There is no reason whatsoever why credit cards should not be regulated like debit cards — their obscene profit margins are evidence enough of that. Perhaps the Fed might grant them a slightly higher rate on account of larger and more complicated networks. Whatever the case, simply studying their books and mandating fee schedules that would cut card company profits by 95 percent, and bring card-issuing bank returns in line with regular banks, could be done easily, with an enormous net benefit. Some big spenders would lose out on cheap vacation flights, but the entire population (aside from a few investors and executives) would enjoy a substantial bump in their real income.

Or, the networks could simply be nationalized. The Fed already has its hands deep in every aspect of American payments systems, or is running them outright. It would be a trivial matter for it to take on credit card operations, setting the fees at whatever it takes to cover the system's operational costs and no more.

Basically you can apply that argument to Microsoft or Facebook or Google or Apple or whatever successful company out there, right?

Why do they have these "obscene" margins? Must be because they're doing something bad, must be by taking something away from customers.. let's regulate them to hell and everybody will be better off, right? Or nationalize them, because government-run things are great.

Meanwhile, Visa and Mastercard provide near-instant, secure ways to pay and move money around the world for trillions of dollars while fighting a deluge of fraud, and for their trouble they take in the 0.x% range, often a lower cost than cash (security costs, theft, employee time to count and store it, etc). Clearly a win-win proposition. And they keep improving their rails, allowing new businesses to be built on top and new capabilities to make life better for their customers (contactless, 2-way, APIs, tokens, NFC, etc). I'm sure a nationalized network would do that just as well... ugh.
Title: Re: V - Visa
Post by: Jurgis on December 04, 2019, 06:00:06 AM
Removing most of the politics from article and Liberty's post, it is quite possible IMO that CC fees might be capped the same way debit card fees were. V/MA did not exit debit card business when fees were capped and they won't exit CC business if governments cap CC fees. V/MA and banks will definitely lobby like crazy against the cap.

I just did money transfer to Lithuania using Western Union. Using debit card the transfer costs 0.23%. Using credit card it costs ~3.7%. Yeah, (big) part of that is bank fees, so maybe that's what might be capped first. (And I am aware of all the benefits of V/MA rails ;) )
Title: Re: V - Visa
Post by: Liberty on December 04, 2019, 06:40:01 AM
If something gets haircut, it's going to be the bank's cut. Capping V/MA take rate would be barely noticeable to consumers. They take very little, it just happens to be very high margin because it's mostly a fixed cost network.

But if you regulate what banks can take, there's going to be a lot of complaints from people who like their rewards and such... There's no free lunch.
Title: Re: V - Visa
Post by: fareastwarriors on January 13, 2020, 02:04:31 PM
Visa to acquire Plaid, the fintech powering Venmo and other banking apps, for $5.3 billion

https://www.cnbc.com/2020/01/13/visa-to-acquire-plaid-the-fintech-powering-venmo-and-other-banking-apps-for-5point3-billion.html (https://www.cnbc.com/2020/01/13/visa-to-acquire-plaid-the-fintech-powering-venmo-and-other-banking-apps-for-5point3-billion.html)
Title: Re: V - Visa
Post by: LC on January 13, 2020, 02:14:38 PM
I like it. Happier that Visa got it vs. MC.

https://blog.plaid.com/plaid-and-visa/

Title: Re: V - Visa
Post by: Liberty on January 14, 2020, 08:02:48 AM
https://stratechery.com/2020/visa-plaid-networks-and-jobs/
Title: Re: V - Visa
Post by: WneverLOSE on January 14, 2020, 10:09:05 AM
If someone is familiar with what Plaid does I would really appreciate it if you can explain it to a layman like me.
I am interested to know why visa needed to buy it and couldn't build something to compete, do they have a network effect going on or is it already profitable enough to justify a 5B$ price tag.
 
Title: Re: V - Visa
Post by: LC on January 14, 2020, 10:30:15 AM
If someone is familiar with what Plaid does I would really appreciate it if you can explain it to a layman like me.
I am interested to know why visa needed to buy it and couldn't build something to compete, do they have a network effect going on or is it already profitable enough to justify a 5B$ price tag.
 
The link Liberty posted directly above is a good primer.
Title: Re: V - Visa
Post by: LC on January 14, 2020, 12:15:13 PM
https://www.forbes.com/sites/antoinegara/2019/12/17/the-forbes-investigation-inside-the-secret-bank-behind-the-fintech-boom/#43a0c7f63c10
Title: Re: V - Visa
Post by: fareastwarriors on February 04, 2020, 08:20:50 AM
Visa Is Planning the Biggest Changes to Swipe Fees in a Decade

Rates will be lower for some businesses, including real estate

Merchants pay more than $100 billion a year in such fees

https://www.bloomberg.com/news/articles/2020-02-04/visa-is-planning-the-biggest-changes-to-swipe-fees-in-a-decade?srnd=premium
Title: Re: V - Visa
Post by: Liberty on February 11, 2020, 01:27:39 PM
Good threads with highlights from Visa's investor day (only happens every three years):

https://twitter.com/CoreDentalDDS/status/1227207437394075648?s=20
Title: Re: V - Visa
Post by: LC on February 11, 2020, 02:22:50 PM
Thanks for posting.
Title: Re: V - Visa
Post by: Liberty on February 16, 2020, 12:18:13 PM
https://www.wsj.com/articles/dont-discount-visa-11581676213
Title: Re: V - Visa
Post by: fareastwarriors on March 12, 2020, 01:41:17 PM
https://www.wsj.com/articles/dont-discount-visa-11581676213

What did it say? Anything interesting?
Title: Re: V - Visa
Post by: orthopa on March 12, 2020, 02:23:32 PM
I really hope management for V and MA have not panicked and stopped buying back stock.
Title: Re: V - Visa
Post by: valueinvesting101 on March 12, 2020, 03:21:13 PM
Visa market cap is higher than all the banks in US. Visa was created by BOA and then all banks joined the platform.

At some point all the banks would be interested in coming together to cut into Visa's margin by launching similar entity owned by bunch of banks together. They don't even need to build full fledge competitor but movement in that direction would be good enough to cut into Visa's margins. Something on similar lines has happened against Bloomberg due to its pricing power.

For Visa alternative could also come from regulatory forces in Asia which would be growth market in the long run.

Rupay card in India has already captured sizeable market in terms of card issued. Something similar could also be there for China/Europe as well.
Title: Re: V - Visa
Post by: orthopa on April 15, 2020, 07:12:29 AM
https://www.marketwatch.com/story/the-credit-card-giants-viewed-as-the-two-best-companies-in-the-world-face-increasing-skepticism-amid-covid-19-2020-04-15?mod=mw_latestnews

I hope for a long term down trend in price for these two come. Would allow more time to add and for the companies to buy back stock. Historically they have been stuck buying back at a very high multiple. Will help these 2 compound even more.
Title: Re: V - Visa
Post by: Liberty on April 15, 2020, 07:48:27 AM
Visa market cap is higher than all the banks in US. Visa was created by BOA and then all banks joined the platform.

At some point all the banks would be interested in coming together to cut into Visa's margin by launching similar entity owned by bunch of banks together. They don't even need to build full fledge competitor but movement in that direction would be good enough to cut into Visa's margins. Something on similar lines has happened against Bloomberg due to its pricing power.

For Visa alternative could also come from regulatory forces in Asia which would be growth market in the long run.

Rupay card in India has already captured sizeable market in terms of card issued. Something similar could also be there for China/Europe as well.

That boat has sailed decades ago. Not going to happen, not from the banks anyway.
Title: Re: V - Visa
Post by: CorpRaider on April 15, 2020, 10:00:28 AM
Visa market cap is higher than all the banks in US. Visa was created by BOA and then all banks joined the platform.

At some point all the banks would be interested in coming together to cut into Visa's margin by launching similar entity owned by bunch of banks together. They don't even need to build full fledge competitor but movement in that direction would be good enough to cut into Visa's margins. Something on similar lines has happened against Bloomberg due to its pricing power.

For Visa alternative could also come from regulatory forces in Asia which would be growth market in the long run.

Rupay card in India has already captured sizeable market in terms of card issued. Something similar could also be there for China/Europe as well.

Like Zelle?
Title: Re: V - Visa
Post by: Liberty on April 30, 2020, 01:25:56 PM
Visa Q1 (fiscal Q2):

https://s1.q4cdn.com/050606653/files/doc_financials/2020/q2/Visa-Inc.-Q2-2020-Financial-Results.pdf

https://s1.q4cdn.com/050606653/files/doc_financials/2020/q2/Visa-Inc.-Q2-2020-Financial-Results-Presentation.pdf
Title: Re: V - Visa
Post by: Spekulatius on April 30, 2020, 04:06:25 PM
Visa Q1 (fiscal Q2):

https://s1.q4cdn.com/050606653/files/doc_financials/2020/q2/Visa-Inc.-Q2-2020-Financial-Results.pdf

https://s1.q4cdn.com/050606653/files/doc_financials/2020/q2/Visa-Inc.-Q2-2020-Financial-Results-Presentation.pdf

One of the very few companies buying back shares at the moment.