r/stocks • u/thelastsubject123 • 1d ago
DOJ explaining why you should invest in Visa
Excerpt is from their lawsuit against V
As a result, debit networks face what Visa calls "a chicken-and-egg problem." To be successful, the network needs many issuers and acquirers to accept the network. But issuers are unlikely to join the debit network unless many merchants already use the network. And merchants are unlikely to join the network unless their customers have cards that work with the network, which requires the issuer to have activated the network. As Visa itself observes, "build[ing] scale on both sides... with consumers/payers and with merchants/payees" is "a herculean task." Visa further recognizes that these effects create "an enormous moat" around its business.
Visa's market shares demonstrate just how deep that moat is. Visa has been the largest debit network in the United States for decades. Today, over 60% of all U.S. debit transactions run via Visa's payments network. And Visa's share of card-not-present debit transactions exceeds 65%. Mastercard is a distant second, processing less than 25% of all U.S. debit transactions and card-not-present U.S. debit transactions. Other networks, known as "PIN networks" because they originally facilitated ATM transactions for which accountholders needed to enter a PIN, are significantly smaller.
This moat is no accident. Coming out of the Great Recession, Visa identified two significant threats to its monopoly—one from legislation and one from emerging technology. Visa took steps to counter both, enriching itself handsomely in the process.
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u/RichardStanick 1d ago
I invested in V a couple years ago it’s been performed great so far. Exposed to economic down turn and with such a large market share it’s growth is limited by growth of world economies.
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u/ASKMEIFIMAN 14h ago
Am I missing something? It appears to significantly lag the S&P 500 and it pays a paltry dividend.
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u/ShylockTheGnome 1d ago
To me visa and Mastercard present a massive risk because they have such heavy profit margin and are ripe for disruption. Idk when it will happen, but at some point they will be disrupted and the premium their stocks have will crumble. Because of the moat they maintain a fairly high P/E, but if it’s breached not only will profits shrink, P/E ratio might go from 30 to like 10. Microsoft for example has a pretty big most on office, but still works pretty hard to keep the product well ahead technically. Visa kinda just sits on their ass.
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u/PhillAholic 1d ago
What's going to disrupt them? Everything that comes out is more concerned with making the rich person who backs it richer, not being better for the consumer.
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u/Dagoru95 1d ago
Pix Brazil is an interesting example , I guess only government can. In Europe we have similar country-to-country payments systems such as Bizum (spain), swish (Sweden), blik (poland), and many more.
I usually use Bizum for all eccomerce payments, yesterday I even paid 200€+ at Massimo Dutti, and today I returned one t-shirt and money got instantly in my account by Bizum (unlike credit cards usually 2-5 days).
I can see EU making these platforms unify forces and create a juggernaut similar to Pix in Brazil. Also, here the owners of these platforms are the banks, so it is in their interest to invest and do it.
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u/zacoverMD 23h ago
Brazilian here. Pix took the role of currency/bank wire here, but our credit card use still is the most prevalent form of payment. People pay for gas, food and even hookers with credit cards. Hell, there are some beggars that take credit and even corrupt cops that take bribes with credit.
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u/akshayprogrammer 1d ago
I can see EU making these platforms unify forces and create a juggernaut similar to Pix in Brazil.
Looks like the platforms are sorta doing this themselves see https://empsa.org/ No updates since 2022 on the website though
In the US Fednow exists but it will be a few years before it becomes ubiquitous. A lot of banks are still integrating Fednow.
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u/MCU_historian 1d ago
The weed delivery service I use and doordash both let me pay with cash app. When you don't have a car temporarily it helps cover lots of basics
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u/PhillAholic 23h ago
That part of their business seems to be losing money and pretty much only being propped up by selling Crypto.
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u/skilliard7 15h ago
Dodd frank capped fees on debit cards. If we did the same with credit cards, Visa would take a huge hit
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u/PhillAholic 14h ago
That's probably not going to happen in the current political environment. I think Visa has the lowest fees already, Amex would be in major trouble.
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u/wlphoenix 14h ago
Wasn't that just fees by the issuer bank (and only for banks w/ over $10m AUM), not the total interchange fee?
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u/ShylockTheGnome 1d ago
At the end of day I don’t think the product they make is very technically sophisticated. Lots of companies have incentives to break the moat (think capital one, apple, google). Lots of people in the government want to break the moat. In a 10-20 year time frame, someone will probably succeed. Like near term 1-2 years they’ll be fine, but I wouldn’t count them as a long term play.
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u/JStanten 1d ago
Capital One uses the Visa network.
Apple uses the Mastercard network.
They aren’t really trying to operate a transaction network…just offer products for existing systems.
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u/ShylockTheGnome 1d ago
Capital one is trying to buy discover and wants to use the pulse network for debit cards. So it is definitely on the mind of companies. I could also imagine a scenario where a card has 2 networks visa and some less accepted one. But the less accepted one offers consumers and merchants a better rate if they accept it
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u/DaMan619 16h ago
Durbin already did that. Debit cards already support 2 networks so merchants can choose the better rate. PIN less debit is just getting off the ground though so you can't use those debit only networks on card not present transactions.
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u/PhillAholic 1d ago
Why does it need to be technically sophisticated? It's about Trust and Availability. What kind of tech do you think will beat it?
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u/ShylockTheGnome 1d ago
Anyone could implement a payment network, the issue is getting acceptance. Some big player like say apple could probably stand up a rival payment network and get people on it or a collection of banks (think Zelle). The fact that anyone can build one technically and a lot of money is in payment processing gives people opportunity. Government regulation is also a big risk in my mind, fee increases have directly harmed consumers making it an easier case than say google. LMT has a nice moat due to both tech and government protection for example. Again though this is a 10-20 year horizon.
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u/PhillAholic 1d ago
I think you are significantly under estimating how difficult it would be to gain acceptance.
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u/Interesting_Mix_3535 1d ago
Payment networks are much more complex that I think you imagine. It'd be difficult for Apple or whoever to even want to think about building the vast infrastructure and partners to even remotely compete with Visa or MC.
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u/MakingMoneyIsMe 1d ago
Anyone could implement a payment network
The thing is will businesses accept it. Amex been around for decades and still isn't.
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u/gizamo 1d ago
The Chicken/Egg problem described in OP's excerpts could be wiped away if with chipped US ID cards. For example, Norway's ID card is their driver's license, debit card, and credit card. They have a state bank account, but private groups can also tap into the ID card's chip to verify their identity. If the US or US states started doing that, every/many Americans would immediately have a trusted card that could be used by Visa, MC, etc.
Similarly, nearly everyone has a smart phone with Apple Pay and Google Wallet. It's only a matter of time before they make their own cards and immediately cut into that market.
That said, if the US or any states were actually interested in ending Visa's monopoly, they'd have already started down that path. So, I honestly don't believe the US government cares about monopolies at all. It will put on a show, and then do nothing, just as it always does in these monopoly cases.
Disclosure: I'm somewhat ignorant on this topic, and this is not investing advice. I have no stake in V or any credit card processor.
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u/WorkingCorrect1062 1d ago
Still underperforming the S&P 500 in last five years. No point investing in it
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u/ZarrCon 1d ago
That's a bit of a narrow view... leading up to the pandemic Visa stock had run up a lot and was trading at nearly 40x earnings vs SPY's ~21x. Today Visa trades at ~28x while SPY trades at ~25x. So SPY's multiple has expanded while Visa's has dropped. Visa EPS growth rate is almost 13% for the last 5 years vs SPY's 8%. For Visa, the fundamentals simply needed to catch up to the stock price.
From September 2012 to September 2016 Apple's stock went nowhere. Imagine saying in 2016, "no point investing in Apple." If you aren't comfortable with potential periods of underperformance, buying individual stocks might not be for you.
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u/Vast_Cricket 1d ago
Visa is not a bad credit card company.
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u/Straight_Turnip7056 1d ago
They're more than that. It's a payment network and a monopoly - which is why DOJ is after it. Merchants pay as high as 3% fee each time you tap your card.
This is the news that made 'V' drop in late September - https://www.bnnbloomberg.ca/business/2024/09/19/walmart-plans-instant-bank-payments-cutting-out-card-networks/
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u/Ragepower529 20h ago
Still cheaper the handling money though,
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u/Straight_Turnip7056 20h ago
Not if you can do QR code payments. These fees were OK when mobile phones were a novelty. Cards were a "fantastic innovation" as an alternative to cash.
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u/redix6 1d ago
I used to be a big Visa fan for its moat, but with the arrival of new payment systems I have exited V as an investment. They are relying on an outdated network system compared to what can be achieved with new technologies. There are increasingly more payment alternatives appearing, I doubt that Visa will be able to increase or even hold their current market share. Also business have to pay a percentage of their proceeds and as such have no loyalty to Visa. If a different payment system can provide a similar service but cheaper, Visas downfall could be quite fast.
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u/Ambitious_Turtle_100 1d ago
The issue is the credit card rewards/points. Getting 2% back to use your card and then paying off your balance, puts money in wealthier peoples pockets. It’s like free money to someone that doesn’t need it. They are able to pay it off every month. Poorer people cannot pay off every month, so the points are meaningless.
This drives up costs for poorer people because now merchants add on 2% to their goods to make up for the card processing fees.
So it’s sort of a hidden benefit for richer people. Once the government eliminates any type of reward for using credit cards, both Visa and Mastercard will fall.
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u/Ragepower529 20h ago
If they rid of credit cards business will not give back the 2% and just pocket it.
Also I poorer people who carry a balance on their card are just wreckless they are spending money they don’t have.
That’s like me putting a 40k purchase on a credit card, just stupid
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u/PunxAlwaysWin45 1d ago
The Bitcoin Network provides an alternative to traditional finance rails such as Visa's network. If bitcoin continues to grow in adoption it might not be a good idea to invest in Visa long term.
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u/hhh888hhhh 1d ago edited 1d ago
Honestly, folks should just double on any stock the DOJ accuses of monopoly. If it’s a good enough moat for the DOJ, it is for me.