Visa, every mention

Visa (Audio) · Acquired Nov 27, 2023 · 100 mentions

• ▶ 2:29:11 Ben Gilbert So, Visa's business model.
• ▶ 2:30:19 Ben Gilbert There are assessment fees, or network fees, and that network fee goes to Visa, MasterCard, etc.
• ▶ 2:30:50 Ben Gilbert There's a very long PDF on Visa's website that is available with every different concoction you could imagine.
• ▶ 2:32:42 Ben Gilbert You read Visa's entire annual report and you're like, wait, but what part of the split do you actually get?
• ▶ 2:32:49 Ben Gilbert And it's because they get it in a variety of different ways.
• ▶ 2:32:52 Ben Gilbert I would say, I don't know if the Visa people would tell you this is intentionally obfuscated, or if it just ends up being kind of obfuscated, but it's not super easy to figure this out.
• ▶ 2:33:04 Ben Gilbert So Visa, let's round it to .2%, gets 20 cents of that hundred dollar shoe sale.
• ▶ 2:33:11 Ben Gilbert But the cool thing about their 20 cents is, there's basically no variable costs.
• ▶ 2:33:20 Ben Gilbert I mean, merchants are allowed to have a 20 character name in Visa's network.
• ▶ 2:35:55 David Rosenthal There's the Visa network in the middle, that's the third party, but then there also are the fourth and the fifth parties, which are the banks for each of the consumer, the issuing bank, and the merchant, the merchant bank.
• ▶ 2:36:07 David Rosenthal So this sort of envelope of value concept makes sense because those three parties in the middle, Visa and the two banks, they need to split up the value and
• ▶ 2:36:23 Ben Gilbert And Visa has created these products where, you know, it's not just a Visa card, you might get a Visa signature, a Visa signature business, or a Visa, I don't even know what they are, but they basically have said, why don't we come up with…
• ▶ 2:36:23 Ben Gilbert And Visa has created these products where, you know, it's not just a Visa card, you might get a Visa signature, a Visa signature business, or a Visa, I don't even know what they are, but they basically have said, why don't we come up with…
• ▶ 2:36:23 Ben Gilbert And Visa has created these products where, you know, it's not just a Visa card, you might get a Visa signature, a Visa signature business, or a Visa, I don't even know what they are, but they basically have said, why don't we come up with…
• ▶ 2:36:46 Ben Gilbert And Visa says, well,
• ▶ 2:36:57 Ben Gilbert And so let's say we want to tell the issuing bank, hey, for this tier, this visa signature, you actually get more money.
• ▶ 2:37:15 Ben Gilbert And then Visa's argument back to the merchant is, well, hey, because we're actually taking more money on this fancier card, you're getting access to customers that we've now brought onto our network who are much better customers that you…
• ▶ 2:39:26 David Rosenthal Party to this are the consumer and Visa, the network itself, and so thus that's how they're able to do so much special stuff.
• ▶ 2:46:01 Ben Gilbert What does Visa look like?
• ▶ 2:46:04 Ben Gilbert Well, last year Visa processed 14 trillion dollars of volume through their network, which is a almost meaninglessly large number.
• ▶ 2:47:10 Ben Gilbert The number of transactions they processed last year was over a hundred and ninety billion, so that is 27 transactions per person on Earth, including young children, every single year.
• ▶ 2:47:27 Ben Gilbert There are 4.1 billion Visa cards in circulation.
• ▶ 2:47:32 Ben Gilbert Their net revenue is twenty-nine billion dollars.
• ▶ 2:47:42 Ben Gilbert So, there's an interesting thing that I didn't really realize with Visa, which is, it's had a hell of a decade.
• ▶ 2:47:50 Ben Gilbert In my head, Visa has been this steady state thing in the world, as has MasterCard, but the last decade has been the story of Visa's incredible dominance in revenue and transactions and volume.
• ▶ 2:48:03 Ben Gilbert Actually true that a lot of their growth has been recent in the last decade.
• ▶ 2:48:08 Ben Gilbert Their value-added services, this is an interesting thing that I want to come back to, was six billion.
• ▶ 2:48:13 Ben Gilbert So look at their overall revenue number of twenty-nine billion.
• ▶ 2:48:16 Ben Gilbert Their value-added services is six billion.
• ▶ 2:48:20 Ben Gilbert The most shocking thing about the business is they have 50% net income margins.
• ▶ 2:48:28 Ben Gilbert So of the thirty-ish billion that they made in revenue,
• ▶ 2:48:32 Ben Gilbert Their net income was 15.
• ▶ 2:48:36 David Rosenthal All the picture we painted in the whole story, it was all building toward that climax of they have created something with essentially zero marginal costs in perhaps the largest market out there, certainly one of them, global commerce.
• ▶ 2:48:57 Ben Gilbert And as Visa would argue, both consumer, but also B to B commerce.
• ▶ 2:49:07 Ben Gilbert And you might say, so wait, if they have 50% net income margins, what is their gross margin?
• ▶ 2:49:17 Ben Gilbert Their gross margins are 98%.
• ▶ 2:50:30 Ben Gilbert They do have 27,000 employees.
• ▶ 2:50:54 David Rosenthal Even Nvidia doesn't have gross margins like Visa.
• ▶ 2:51:04 Ben Gilbert Visa does seven hundred and seven million transactions per day.
• ▶ 2:51:15 Ben Gilbert So a big takeaway should be like, my God, they have built
• ▶ 2:51:33 David Rosenthal I mean, you hear about AWS going down more frequently than you hear about Visa going down.
• ▶ 2:51:42 Ben Gilbert They have six data centers distributed across the world.
• ▶ 2:52:53 Ben Gilbert Visa, I'm running transactions across their network all the time.
• ▶ 2:52:57 Ben Gilbert All it knows is my card number.
• ▶ 2:52:58 Ben Gilbert It has no notion of identity.
• ▶ 2:53:08 Ben Gilbert Visa, we will use your network.
• ▶ 2:53:10 Ben Gilbert Because it is the way that I need to accomplish something for my customer, but I'm not just going to, like, turn my customer into your customer.
• ▶ 2:53:23 David Rosenthal Obviously, debit cards are a big part, and debit transactions are a big part of the Visa network today, but when Visa first tried to introduce them, this was one of the things that led to D.
• ▶ 2:54:23 Ben Gilbert So it's so interesting that debit came decades after credit cards on the Visa network.
• ▶ 2:54:29 Ben Gilbert You would think they would have started with debit, but of course they couldn't have started with debit.
• ▶ 2:54:37 David Rosenthal And actually, there was a big fight between Visa and all the ATM networks, and Dee wanted your Visa card to also be your ATM card.
• ▶ 2:54:37 David Rosenthal And actually, there was a big fight between Visa and all the ATM networks, and Dee wanted your Visa card to also be your ATM card.
• ▶ 2:55:48 Ben Gilbert So we've talked a lot here about the interchange and how Visa makes money in the transaction.
• ▶ 2:57:42 Ben Gilbert That downward pressure has been easy to give on by Visa for things like in-person transactions with card present, but for a lot of their super high margin online transactions where the growth is, that's where they decide, oh, actually,
• ▶ 2:58:01 Ben Gilbert So Visa is sort of a master of packaging, figuring out, you know, how can we take some things and sort of make them more affordable to our merchants or give them away for free while also figuring out how can we sort of move things around…
• ▶ 2:58:26 David Rosenthal Visa and all the credit card networks.
• ▶ 2:59:49 Ben Gilbert Visa's incentives are more transactions, because we want more .2 percents.
• ▶ 3:00:07 Ben Gilbert And anti-fraud measures and other value-added services that they have to buy from Visa.
• ▶ 3:00:12 Ben Gilbert Probably a good time to introduce that six billion that Visa's doing in value-added services.
• ▶ 3:00:16 Ben Gilbert That is all brand new high margin products that they've sort of invented in the last 10 years or so that they're trying to sell to merchants.
• ▶ 3:00:39 Ben Gilbert They're making a lot of money on that, and they view that as a high growth area in the future, too.
• ▶ 3:01:01 Ben Gilbert All right, so that basically covers the high-level stats on the business today so that we can go into analysis, and you can have a general shape of the, uh, business we're talking about, but, you know, eleventh-largest company in the…
• ▶ 3:01:24 David Rosenthal They get to keep half of that after taxes at the end of the day.
• ▶ 3:02:26 Ben Gilbert And I think that's the right thing to do here with Visa and MasterCard, too.
• ▶ 3:02:29 Ben Gilbert At the end of the day, Visa and MasterCard have basically no sustainable competitive advantage over each other.
• ▶ 3:02:54 David Rosenthal I do think Visa made a genius move, positioning against American Express, going up market in perception and partnering with the Olympics.
• ▶ 3:03:14 Ben Gilbert But you're literally never making, I guess it's for the banks, because consumers are never making a buying decision on whether it's Visa or MasterCard.
• ▶ 3:03:27 David Rosenthal So yes, the banks make the decision, but really the consumers make the decision, because if consumers have a preference for Visa over MasterCard, they'll demand it from the banks.
• ▶ 3:03:43 Ben Gilbert I got the Chase Sapphire Reserve card five years ago, because it was by far the best rewards card for the type of thing that I spend money on, as probably with half of our audience, and I think it's a Visa Infinite, which I'm sure is one…
• ▶ 3:03:58 David Rosenthal I think today that's true, but I do think, based on the research, and I was maybe too biased towards Visa, but I think Visa did accelerate past MasterCard, and I think there was a strong brand element of that.
• ▶ 3:04:14 Ben Gilbert It's funny how it used to feel more like you were getting a Visa card that was somehow, like, powered by a bank, and now it feels more like you are getting a custom proprietary product that a bank invented for you that happens to either…
• ▶ 3:04:35 Ben Gilbert You're like, sorry, there's a bank behind this, and like, oh, is it Visa or MasterCard?
• ▶ 3:05:29 Ben Gilbert Ok, so Visa and MasterCard together, which of the seven powers do they have today?
• ▶ 3:05:45 Ben Gilbert Any investment that Visa or MasterCard make get amortized across 16,000 member banks, across four billion cards, across
• ▶ 3:05:55 Ben Gilbert Half the humans on the planet or whatever it is, I mean, just good luck competing with any fixed cost investment that Visa is gonna make.
• ▶ 3:06:18 Ben Gilbert Visa is the exact same thing with all of their fixed R&D costs.
• ▶ 3:09:01 Ben Gilbert They just go and talk to Visa and MasterCard and say, who gives me a better deal?
• ▶ 3:09:14 Ben Gilbert Well, yeah, I mean, before then, there's interesting analysis to do between Visa and MasterCard.
• ▶ 3:09:24 Ben Gilbert But yeah, is there switching costs between the Visa, MasterCard oligopoly and someone else?
• ▶ 3:09:33 Ben Gilbert Like, if you were a bank that wanted to issue a bunch of cards that weren't Visa or MasterCard.
• ▶ 3:10:46 Ben Gilbert The next one that I think is pretty interesting is Visa, as I read their whole annual report, they have a narrative around these new things that they're launching, especially the value-added services.
• ▶ 3:10:59 Ben Gilbert And everything that is good for consumers, often for security and privacy, is also good for Visa.
• ▶ 3:11:07 Ben Gilbert That is sort of the playbook that Visa runs, is they figure out what is something that we can sort of advertise as a benefit to you that also helps us either increase number of transactions, margin, or lock-in.
• ▶ 3:14:09 Ben Gilbert Do you ever, like, run into Visa people hanging out around San Francisco?
• ▶ 3:14:38 David Rosenthal The longtime chairman of the board of the ballet was the CEO of Visa USA for many years.
• ▶ 3:14:46 David Rosenthal Like, there are a lot of Visa people in that world here.
• ▶ 3:14:57 Ben Gilbert Every tech company would love to be Visa.
• ▶ 3:14:59 Ben Gilbert The financial profile of Visa's business is more tech than any of the tech companies.
• ▶ 3:15:27 Ben Gilbert And with the incredible profit margin that Visa makes today, not to mention whatever the card-issuing banks make, it is very clear that the market has evolved such that these players can charge more in a transaction than is necessary to…
• ▶ 3:18:20 Ben Gilbert This is a bear case on Visa is, are they ever going to participate in real estate or cars or, no, not at these interchange rates.
• ▶ 3:18:34 David Rosenthal Well, before we go into Bear and Bull, where I know you and we have a lot to talk about, what could potentially disrupt Visa and MasterCard, I think it is worth just one minute on the value creation side of this, and I really think you hit…
• ▶ 3:18:58 David Rosenthal There's a lot of value capture that Visa is doing and MasterCard too.
• ▶ 3:20:31 Ben Gilbert If you look at how Visa breaks out segments, you're like,
• ▶ 3:21:24 Ben Gilbert So that is this tailwind that has been with Visa forever.
• ▶ 3:21:39 Ben Gilbert It's not like Visa's
• ▶ 3:23:15 David Rosenthal I doubt the Chinese government wanted Visa, uh, you know, ostensibly American corporation powering their payments.
• ▶ 3:23:22 Ben Gilbert There's actually this really interesting weird deal that got cut between China UnionPay and Visa, where if you use a cup card in China, CUP, it uses the CUP rails, but if you go internationally where, like, there is no China UnionPay…
• ▶ 3:24:53 Ben Gilbert The U.K. has something called faster payments, and this can get especially scary for Visa
• ▶ 3:25:05 Ben Gilbert And so, that is a method of transferring money between countries that has nothing to do with Visa.
• ▶ 3:25:42 Ben Gilbert So on a Apple Pay transaction, I'm pretty sure Apple makes about as much as Visa does, because they stack an extra 15 basis points on top