How Increased Credit Card Usage Can Impact Visa’s Stock Price

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Visa

As cash usage declines across the developed world and mobile payments become more and more prominent, Visa (NYSE: V) has a massive opportunity to grow its business. One of the biggest revenue streams for the payments company is the revenue it generates from transaction fees. A transaction fee is the fee that Visa charges for each transaction on its payment network. This includes the sum of the fee paid to the issuing bank, a settlement fee paid to the acquiring bank, and a maintenance fee for accessing Visa’s databases and servers. As more and more of payments are paid online, Visa has the potential of generating significant revenue growth from this segment.

The table below shows three scenarios in which the number of transactions made on each Visa issued credit card has been changed. The first scenario keeps the average number of transactions on each Visa issued card constant at 28.5. The second assumes a 3% annual growth and the third a 3% decline. As one can see from the table, a modest 3% growth can result in a 10.3% increase in the Trefis price estimate for the company. Similarly, a 3% decline can result in a 9.2% reduction in our price estimate for the company.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Visa
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