The tech industry moves fast. Yesterday’s disruptors become today’s legacy, and tomorrow’s footnotes. But every so often, a company comes along that doesn’t just ride the wave of change, it becomes the infrastructure beneath it.

We’ve gone from cash registers to smartphones, from handwritten checks to one-click payments, and from waiting in line at the bank to tapping a screen anywhere in the world.

Through all that change, one constant remains: Visa is still the engine behind much of how money moves.

You rarely think about Visa, and that’s exactly the point. The more invisible it is, the better the experience. Yet behind the scenes, it’s one of the most resilient and profitable business models on the planet: a tollbooth on trillions of dollars in global commerce.

Today, we’re pulling back the curtain:
What does Visa do?
Why is Visa so profitable?
Why do competitors struggle to take share?
How does Visa keep growing in a rapidly evolving landscape?
And most importantly, is it a buy for the Intrinsic Value Portfolio?

Let’s dive in!

— Daniel

*Special Announcement*

Shawn and I have a big announcement to make!

Over the past few months, we’ve been building something we’ve wanted for a long time: The Intrinsic Value Community — a place for sophisticated long-term investors to exchange ideas, challenge each other’s thinking, and build meaningful connections with like-minded individuals.

Investing can be a lonely game, and it certainly was for us for a long time. That’s why we started sharing ideas online. But nothing compares to being part of a curated group built specifically for high-quality discussion and shared learning.

Inside the community, we give each other feedback on our latest research, post our best ideas, and bring in guest speakers, from industry experts to investment professionals, who share actionable insights and explain how they invest and think.

If that sounds interesting, join the waitlist now to claim one of just 30 open spots!

Visa: Still the Card to Hold?

The Misunderstood Giant

It’s one of the most familiar logos in the world, stamped on billions of cards, accepted all over the globe. But ask ten people what Visa actually does, and most will get it wrong.

Visa doesn’t lend money. It doesn’t issue cards. It’s not a bank. Instead, it built something more durable: the digital infrastructure that makes electronic payments work.

Every time a customer taps their card, swipes at checkout, or pays online, Visa steps in to verify the transaction, route it between banks, and confirm everything clears — all in the blink of an eye.

Picture it like this: you’re at Starbucks. You swipe your card. Instantly, Visa’s network pings your bank (the issuer), notifies the store’s bank (the acquirer), verifies the purchase, and approves the payment. All of this happens in under a second. And with every transaction, Visa earns a small fee for making it happen.

There are two main fees. The first is the network or service fee, essentially a toll on every dollar that flows through the network. The more money people spend with Visa cards, the more Visa earns. Generally, that fee is between 0.1% and 0.3%.

The second fee is the so-called data processing fee. This is a flat fee charged on every single transaction, regardless of size. That means Visa gets paid the same whether the card is swiped for $5 or $500.

That’s the core of the business: a four-party system where Visa connects cardholders, merchants, and banks, without ever touching the money itself.

Together, those fees add up. On average, Visa earns about $0.20–$0.25 per $100 spent. Doesn’t sound like much, until you realize the company processed over 230 billion transactions last year, moving almost $16 trillion through its network.

That’s the beauty of the model: no credit risk, no inventory, just a slice of every transaction at scale.

It’s a business that’s easy to overlook and incredibly hard to disrupt. And that’s where the investment story begins. But before we dig deeper into the investment case, let’s take a quick detour into Visa’s origin story.

The BankAmericard – Visa’s Origin Story

Before it became a $700 billion global commerce giant, Visa was just an experiment in credit — and a messy one at that.

The story begins in 1958, when Bank of America dropped 60,000 credit cards into the mailboxes of unsuspecting residents in Fresno, California. No applications. No pre-approvals. Just unsolicited plastic and a bet that people would start spending on trust.

It worked, but not without chaos. Fraud, delinquency, and operational headaches exploded. But the core idea, a universal payment card usable at multiple merchants, proved powerful enough to survive the early mess. Other banks wanted in, and Bank of America began licensing what it called the BankAmericard program nationwide.

By the early 1970s, it was clear that no single bank could scale and govern the system on its own. So Bank of America spun it off into a member-owned consortium. That group would eventually rebrand the product in 1976 as something more globally neutral and easily translated: Visa.

In parallel, a group of competing banks launched their own network, which would become MasterCharge and later Mastercard — Visa’s only true peer in today’s landscape.

For decades, Visa operated as a bank-owned cooperative, focused on scaling card issuance and merchant acceptance around the world. It wasn’t until 2008 that Visa went public, in what was, at the time, the largest IPO in U.S. history, valuing the company at nearly $40 billion.

Since then, Visa has expanded well beyond its roots in consumer credit. It now connects over 4 billion cards to more than 100 million merchants, processes over 230 billion transactions a year, and has become a critical layer of infrastructure for global commerce.

What started as a risky credit experiment in a single U.S. city has grown into one of the most profitable and powerful networks in the world.

Visa’s Business Beyond the Swipe

Walking through the process of a transaction in a minute or two makes it seem like this is a simple and straightforward business, and to some extent, it is. On the other hand, Visa has evolved beyond the core swipe-and-go business. It now operates across three broader pillars:

The first is Consumer Payments, the traditional debit and credit card network that we’ve just explained above.

The second is what Visa calls New Flows. These are money movements that historically haven’t involved cards at all, like business-to-business payments, peer-to-peer transfers, or government disbursements. Whether it's a university paying a vendor, a gig platform sending wages to drivers, or a local government issuing tax refunds, Visa is building the tools to digitize and route those flows over its network.

The third pillar is Value-Added Services, a rapidly growing segment that includes fraud detection systems, tokenization technology, real-time risk scoring, and even payment consulting. These tools help banks, merchants, and fintechs operate more securely and efficiently, and they bring in higher-margin, recurring revenue.

Although calling a certain business Visa’s “high-margin” business might understate Visa’s overall operations, everything Visa does is high margin. Its gross profit margin is 98%, and its operating margin is an astonishing 67%.

Still, if there’s one part of the core business that stands out for its profitability, it’s cross-border payments. These make up only 10 to 12 percent of Visa’s volume, but over a third of its revenue.

That’s because international transactions come with more complexity, currency exchange, and risk, which Visa can monetize through higher fees. On average, Visa earns three times more per dollar when a payment crosses borders.

Hidden Scale and Profitability

Most giant tech companies make headlines every other week. Visa does not belong to that category of tech company. It’s not big on spending tens of billions on AI or other technologies. In fact, its combined capital expenditures over the last five years are less than $5 billion.

Amazon spent $300 billion in the same timeframe… You might argue that the lack of investment will come back to bite Visa. But that hasn’t happened for decades now.

Visa is not a company that grows by headcount or by creating new businesses every second year. It grows by processing more transactions on rails it already owns, and doing so at almost no incremental cost. That’s what makes the economics so powerful.

Visa’s fixed-cost structure means that nearly every additional transaction drops straight to the bottom line. With operating margins in the high 60s and free cash flow margins in the mid-50s, Visa runs more like a software platform than a financial services firm.

That free cash flow turns into consistent shareholder returns. Since 2020, Visa has returned over $60 billion to shareholders through repurchases and dividends. In the last year alone, it bought back $17 billion in stock and paid out another $4 billion in dividends — yielding around 3 to 4% annually.

High margins, low capital intensity, strong returns on capital, and dependable cash generation. There’s nothing flashy here, just one of the most quietly efficient businesses in the world. The question is: can Visa continue this growth? When will the market be saturated for a company that already moves almost $16 trillion a year?

What Drives Future Growth?

The answer is that Visa doesn’t need to reinvent itself, the world is changing in ways that play directly to its strengths.

First, there’s the ongoing shift from cash to digital payments. As of today, more than $11 trillion in consumer spending still happens in cash or checks, roughly the size of Visa’s entire current consumer payments business. That’s not just an emerging markets story. Even developed regions like Japan and Germany still rely heavily on cash. As that behavior continues to shift, Visa stands ready to capture the upside, no new business model required.

Beyond that, Visa is expanding into entirely new types of payment flows — what it calls New Flows. These are transactions that never used cards in the first place: B2B payments, person-to-person transfers, government disbursements, gig worker payouts. According to Visa, this market represents over $200 trillion in annual volume, and it’s only beginning to digitize. Tools like Visa Direct and Visa Commercial Solutions are already helping capture these flows with high-value, real-time infrastructure.

And then, last but not least, there’s the rise of Value-Added Services, software-like tools layered on top of the network. These include fraud prevention, tokenization, consulting, and analytics, services that not only generate revenue, but make the overall platform stickier. In 2024, this segment generated nearly $9 billion, growing at 18% year over year — faster than the core business.

Let’s put some numbers behind these drivers to see what we can expect from Visa.

Global personal consumption expenditure (PCE) has grown at 2–3% in real terms and about 5% annually in nominal terms, providing a consistent base for Visa’s transaction-linked revenues. Then, the ongoing shift from cash to digital adds another layer. Analysts often estimate 4–5% annual growth here. I would go with a more cautious 3%, considering that most of the runway comes from emerging markets, and those are harder to penetrate for Visa. But we’ll get to that!

What’s left are the large opportunities in Value-Added Services and, more than anything, New Flows. These are still rather untapped, but it will take time to develop this business. I expect low single-digit growth for both. I arrive at those numbers by multiplying their revenue share by their annual growth rate.

Depending on how these markets develop and how much share Visa captures, the pace of growth could vary. But given the sheer size of the untapped opportunity, I would be more surprised if growth came in below expectations than above.

Altogether, these levers support a credible path to low double-digit revenue growth, before factoring in buybacks, pricing power, or further margin expansion.

Moat and Competition

In our podcast episode on Visa, Shawn said that a business with these economics seems ripe for disruption. I mean, wouldn’t any business on this planet want to get into a market that profitable and capital-light?

But that’s much easier said than done. While the business sounds straightforward, there’s a reason why just two players make up about 90% of the market (excluding China’s UnionPay). Visa and Mastercard are masterclasses in competitive advantages.

The most obvious edge is network effects. Visa connects over 4 billion cardholders with more than 100 million merchants in over 200 countries. That kind of global reach creates a powerful flywheel: the more merchants accept Visa, the more valuable it is for consumers to carry it. And the more consumers carry Visa, the more merchants feel pressure to accept it. Once that loop is spinning, it becomes very difficult to slow down.

But scale is just the start. Visa’s infrastructure is deeply embedded in the global financial system. Banks, merchants, point-of-sale providers, fintech apps — they all rely on Visa’s APIs, fraud detection tools, settlement rails, and tokenization layers. Switching off Visa wouldn’t just be inconvenient, in many cases, it would mean rebuilding entire operational systems. That’s technical lock-in at the infrastructure level.

Then there’s the brand. Visa doesn’t just work behind the scenes, it’s a globally recognized symbol of trust. Whether you're checking out in São Paulo, Berlin, or Tokyo, the Visa logo tells you one thing: this will work. For tourists, merchants, and financial institutions alike, that kind of reliability is not easy to replace.

And then there’s a moat hidden in plain sight: regulation. Most investors view it as a threat, and to be fair, it can be. We’ll get to that in the next section. But there’s another side to the story: regulatory licensing can be a powerful advantage.

Visa has spent decades building relationships with regulators and securing the licenses needed to operate in nearly every major economy. That regulatory footprint, especially in complex, highly fragmented markets across emerging economies, is not something a startup can replicate overnight. It’s slow, expensive, and politically sensitive. And it gives Visa a head start most competitors can’t catch.

Average companies have no moat. Great companies build one. But the best companies layer multiple moats on top of each other. Visa clearly belongs in that last group.

Risks & Headwinds

Speaking of risks, Visa’s moat may be wide, but no company is bulletproof. If there’s a single theme across Visa’s biggest risks, it’s disintermediation, the possibility that someone, somewhere, finds a way to move money without Visa taking a cut. And that is happening already.

In India, the government launched the Unified Payments Interface (UPI), a real-time system that moves money directly between bank accounts. It’s fast, free, and rapidly scaling. Today, UPI processes more than 70% of India’s transaction volume and already represents 36% of consumer spending, volume that bypasses Visa entirely.

A similar story is playing out in Brazil, where the central bank launched Pix, an account-to-account (A2A) payment system that now accounts for nearly half of all payments in the country, despite only launching in 2020.

And these aren’t fringe fintech experiments. They’re government-backed platforms with regulatory tailwinds and widespread adoption. They don’t just limit Visa’s role, they remove it.

Meanwhile, China remains a closed door. Visa has only limited access, and the market is dominated by UnionPay, Alipay, and WeChat Pay — all domestic giants protected by local regulation.

Beyond government-led systems, there’s a second wave of threats from the fintech and Big Tech ecosystems. Apple Pay, PayPal, Square, and others still largely ride Visa’s rails today, but increasingly, they’re nudging users to link bank accounts directly. That lowers fees for them… and cuts Visa out of the loop.

Then there’s the broader trend toward account-to-account (A2A) payments. These systems let consumers pay directly from their bank accounts, skipping the card network entirely. Adoption has been slow in the West, mostly due to UX (User Experience) friction and weaker consumer protections. But the technology is improving, and the incentives for merchants are clear: no interchange, no card fees, and faster settlement.

That’s not to say Visa is standing still. With tools like Visa Direct and its acquisition of Tink in Europe, the company is actively building its own rails for real-time and A2A transactions. In 2024, Visa Direct grew 38%, a sign the company is aware of the threat and working to stay ahead of it.

But here is where regulation’s flip side for Visa comes into play. When Visa tried to acquire Plaid, a U.S.-based open banking platform, in 2020, the Department of Justice stepped in and blocked the deal. The argument was that Visa, already dominant in the payments space, was trying to eliminate an emerging competitive threat before it could grow.

Rather than face a lengthy antitrust battle, Visa walked away. It was a clear sign that regulation can protect Visa by keeping others out, but it can also limit Visa’s ability to evolve through acquisition — especially in areas that might compete with or bypass its core card network.

Ironically, it later acquired the above-mentioned Tink, Plaid’s European counterpart, with far less resistance.

Valuation

I’ve talked plenty about how Visa works in the background and pretty much unnoticed, and that’s true. However, investors have figured out for quite some time what a phenomenal business model Visa is. Accordingly, Visa is rarely cheap, and right now is no exception.

At today’s price, the stock trades at roughly 28–29x forward earnings. That’s well above the market average but close to Visa’s historical average. For many value-oriented investors, this immediately erases it from the list, but not for many superinvestors. It’s one of the most owned stocks, and quality investors like Chuck Akre, Chris Hohn, and Terry Smith hold very sizable positions.

When you look at what Visa delivers, ultra-high margins, consistent double-digit earnings growth, and minimal capital requirements, it makes a lot of sense. Chris Hohn famously says he wants to own businesses that are still around in 20 years. Add to that returns on invested capital in the mid-20s, and it’s a recipe for success.

However, part of the truth is that many of these investors initiated their positions a long time ago. Let’s use two valuation methods to see whether Visa is an attractive buy right now. Let’s start with a rule of thumb.

An intuitive way to think about Visa is through its free cash flow yield plus growth. Currently, Visa’s FCF yield sits just north of 3%. Layer on an expected 10–12% in annual earnings growth, and you’re looking at a potential 13–15% annual return. But this method relies on two premises.

The first is obvious: Visa needs to keep growing earnings at the expected 10–12%. The second might be a bit less obvious: this method assumes that the multiple investors are willing to pay for Visa’s earnings remains constant.

In my model, we see what happens to the returns we can expect, on paper, when valuation multiples drop. The overall revenue assumption, consisting of PCE growth, digitization, as well as New Flows and Value-Added Services, comes down to 12.5%. Due to the immense buybacks, this yields 14–15% annualized EPS growth.

While this is in line with, and even a bit more optimistic than, the quick FCF yield math, the implied exit multiple in my model, which I calculate by assigning a range of exit multiples and weighing them by probability, comes out at 27x. Considering today’s level of 36x, this is enough to lower the expected return from 13–15% to about 9%. (At the time of recording our podcast, the price was a bit lower, and the expected return was closer to 10.5%)

Let’s briefly play with the numbers and assume an exit multiple of “only” 22. Suddenly, the expected annualized returns would drop into the mid-single digits. And while 22 seems low for Visa, this is still an above-market-average multiple, so a drop like this is not unrealistic.

And just to emphasize again: when we talk about expected returns, we're making educated assumptions — but they’re still speculative.

They rely on our views of the future, which is inherently uncertain. So please treat them for what they are: thoughtful estimates, not guarantees.

Portfolio Decision

Visa checks nearly every box: high returns on capital, recurring revenue, global scale, minimal reinvestment needs. But at today’s price, there’s no real margin of safety. The stock is priced for perfection, and in my experience, perfection is rarely what unfolds.

When a business is already valued as if nothing will go wrong, no regulatory hits, no margin compression, no erosion from A2A systems or international competition, then even a small setback can lower your expected return significantly. And that’s what tilts the risk/reward ratio here: more possible downside surprises than upside surprises.

So for now, Visa stays on the watchlist. If the market gives us a reset, whether from regulation, macro pressure, or simply a multiple contraction, I’d love to own it. That’s not exactly a contrarian take, I know. But sometimes the obvious ones are worth waiting for.

Weekly Update: The Intrinsic Value Portfolio

Notes

• “A rising tide lifts all boats.” Most of our holdings benefited this week from positive developments in the U.S.–China tariff negotiations — all except one. While we’re glad to see rising prices and a more supportive environment for our companies, the foundation for this optimism still feels shaky. So for now, it’s a matter of wait and see.
  

• Reddit was the one exception. The stock dropped nearly 10% on Thursday, without any specific news driving the move. Most likely, it was just a natural pullback after a strong rally earlier this month.

• Meanwhile, Airbnb made headlines with a redesigned app that puts experiences back in focus. The company had tried this before, without much success. But with the core business now on firmer ground, the timing might be better this time. Again, time will tell.

Quote of the Day

"Over the years I realised there’s good companies and bad companies and I became more discerning about what was good and what was bad. I realised good is better.”

— Sir Chris Hohn

What Else We’re Into

📺 WATCH: Sir Chris Hohn on great companies and what makes a successful investor

🎧 LISTEN: How Anthony Bolton outperformed the market with Kyle Grieve

📖 READ: NZS Capital’s Whitepaper on Semiconductors

You can also read our archive of past Intrinsic Value breakdowns, in case you’ve missed any, here — we’ve covered companies ranging from Alphabet to Airbnb, AutoZone, Nintendo, John Deere, Coupang, and more!

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