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Investment Overview for Visa (NYSE:V)
Below we look at the key drivers for Visa which present upside or downside to our price estimate for the company's stock.
- Transaction Volumes: Emerging markets like China and India have seen tremendous growth in cashless payments over the past few years. Currently the Chinese market is largely inaccessible to foreign card networks as only China UnionPay is allowed to handle card payments in China. U.S. card companies such as Visa and American Express are protesting this monopoly, and the U.S. government has taken this issue to the World Trade Organization. If China decides to open up its market, we may witness a steep increase in transaction volumes, which could reach 120 billion by 2019. If this were to occur it would present a 5% upside to our price estimate for Visa.
- Authorization & Settlement Fee per Transaction: Regulation such as the Dodd-Frank financial reforms, which aimed to cap the fees that card issuers can charge per transaction, has been the biggest issue facing the payment services industry of late. Regulators have sought to reduce the interchange fees card issuers can charge merchants on transactions. The industry, in addition to many politicians, have protested vehemently against many of these regulations, but if they remain in place Visa's authorization and settlement fees could decline to below $0.03 per transaction. Should this occur it would present a 15% downside to our price estimate for Visa.
Visa is the largest global electronic payment solutions company in the world. It provides a wide range of products and services to support the credit, debit and related card solutions of institutions in over 200 countries. The company processes more than 60 billion transactions every year, and generates revenue by charging fees for transaction processing and other services.
Visa charges its customers for providing transaction processing and other services, generally on a per-transaction or percentage of transaction basis. Accordingly the company's revenues are largely impacted by the number of transactions it processes and the gross dollar volume purchases made using its cards
Visa's revenues primarily come from the following sources:
Transaction Processing Fees (Data processing fees)
Data processing revenues are earned for authorizing, clearing, settling, processing transactions and other maintenance and support services that facilitate transactions between Visa's customers. Data processing revenues are based on information gathered from VisaNet, its global processing platform, which provides transaction processing services by linking issuers and acquirers.
International Transaction Fees
International transaction fees are assessed to customers on transactions where the cardholder’s country is different from the merchant’s country. International transaction revenues are generally driven by cross-border payment volumes, which include single currency transactions, and currency conversion activities for transactions involving more than one currency.
Assessment revenues are earned from customers for their participation in card programs carrying the Visa brand. Service revenues are assessed based on a pricing methodology applied to the payment volume.
Other revenues consist primarily of optional services or product enhancements, such as extended cardholder protection, concierge services, cardholder services and fees for licensing.
Rapid growth in electronic, cashless payment solutions
The global market for cashless payment solutions such as credit and debit card transactions has grown rapidly, particularly in emerging markets. For example the Asia-Pacific region now represents nearly 25% of global card volume. While this growth will likely moderate going forward we do still expect global transaction volumes to increase as more people and merchants in international markets adopt credit and debit cards.
Opportunity in mobile payments
Visa has begun offering more services that will enable payment of bills from mobile devices. Mobile payments have been increasing steadily and we expect that growth to ramp up as smartphone adoption continues and mobile payment solutions become more secure. This provides a substantial revenue opportunity for the company.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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