Description:
Visa is a leader in worldwide payments. It acts as a central party connecting consumers, merchants and financial institutions, through a tripartite agreement, and securely facilitating millions of payments every day.
Visa’s centralized system provides the technology required to authorize payments in real time, and to accurately settle, analyze and reconcile transactions. Visa establishes and enforces processing rules, execution standards for its members, sets participation fees and criteria, and ensures that cardholders are adequately protected.
Visa is uniquely positioned to benefit from secular growth trends in payments. This includes not only day-to-day spending in the consumer discretionary segment, but also international commercial and private travel activity, and smaller investment transactions. In recent years, commercially related spending has increased exponentially. Furthermore in many countries where payments are still made in cash, rapid growth is anticipated. This should result in double-digit revenue and EPS growth in the coming years. As suggested above, the outlook for the company is particularly promising in developing markets where credit card use is still very low. Currently only about 35% of personal consumption in developing markets is paid for by means of a credit card, the same ratio is above 60% in developed markets.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Visa’s business is well protected from new competitors as barriers to entry in the industry are high. It would be almost impossible to match Visa’s acceptance network,
- Visa is entering the digital wallet market through its “V.me” application,
- Visa is one of the strongest brands in the credit card business,Its expansion potential is almost unlimited,
- Visa generates extraordinary and ever recurring cash-flows,
- The company returns free cash at hand to investors by regularly increasing dividend payments and through a share-repurchase program.
Weaknesses:
- Visa’s business is regularly subject to government scrutiny with regulation of the credit card business expected to increase,
- Litigation risks are also expected to increase in the coming years,
- Penalty payments for past defaults and abusive handling are not yet properly accounted for,
- The new management team has not yet proven its management qualities within Visa,
- Visa is very business dependent on US consumers,- The competition is developing mobile and on-line applications in a more efficient manner.