This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
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. Historically the Chinese market has been largely inaccessible to foreign card networks as only China UnionPay is allowed to handle card payments in China. However, starting June 1, 2015, U.S. card companies such as Visa, MasterCard and American Express are allowed to apply for a license to operate in the card clearing market and break the monopoly that has been held by UnionPay. It is expected that Visa could start operations by 2017. The opening up of the Chinese market could provide a significant upside to our price estimate for Visa. As a result of this, if transactions per card increase by 5% each year for the rest of our forecast period, there could be a 20% upside to our target price for Visa. In contrast, if the number of transactions decline by 3% each year, there could be a little over 10% downside to our stock price.
- Total Number of Cards In Circulation: In the past few years, the total number of cards in circulation has grown between 5% and 6%. We forecast it to grow by 8% over the rest of the forecast period, as cash usage declines and digital payments through mobile phones become more commonplace. If the growth rate exceeds that and instead is 10%, there could be a 10% upside to our stock price. However, if it shoots below that and is 4% instead, there could be a 15% downside to our stock price.
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 card holder’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. Africa has the largest percentage of people using mobile banking. Similarly, Americans are the highest non-cash users. A research by MasterCard indicated that in 2014, non-cash penetration was around 44% of total Personal Consumption Expenditure. This indicates that consumers are spending a significant amount through cards rather than with either cash or checks. The trend is only expected to continue into the future. Outside of the U.S. non-cash penetration is much lower but the use of cards is expected to increase at a higher rate in emerging markets than the mature markets.
Opportunity in mobile payments
Visa has begun offering more services that will enable payment of bills from mobile devices. Mobile phone payments are gaining rapid popularity, coinciding with the surge in smartphone sales. An increasing number of smartphones manufactured now utilize near-field communication (NFC) chips, which facilitate mobile payments. Mobile payments was at $450 billion in 2015 and is expected to cross $1 trillion by 2019 as an increasing number of phones incorporate near-field communication (NFC) chips to facilitate mobile payments. According to the Federal Reserve Board, 22% of people with mobile phones in the U.S. made a mobile payment in 2014. This figure was 17% in 2013. Visa is collaborating with mobile wallet services of ApplePay and Samsung to capitalize on this trend.
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
View All Help Topics