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Morningstar | Visa Enjoys Both a Wide Moat and a Long-Term Secular Tailwind

Visa is a somewhat unique company in that it is a longtime, established market leader that still enjoys strong growth prospects. Despite the ongoing evolution in the payments industry, we think a wide moat surrounds the business and that Visa’s position in the global electronic payment infrastructure is essentially unassailable.The shift toward electronic payments has aided Visa’s growth in recent years, and we expect that to continue for the foreseeable future. Digital payments, on a global basis, surpassed cash payments just a couple of years ago, suggesting this trend still has a lot of room to run. Visa’s position as the leading network makes it something of a tollbooth business, and the company is relatively agnostic to the smaller shifts within electronic payments, since it earns fees regardless of whether payment is credit, debit, or mobile.Visa is not without its issues in the near term, and its smaller peer, Mastercard, has been performing better lately. Growth in cross-border transactions, which are particularly lucrative for the networks, are under some pressure, and this will likely continue in 2019. At this point, management attributes this primarily to macroeconomic impacts. But we think smaller and more regional networks are building out additional capacity for cross-border transactions, which could eat into growth a bit in the coming years. However, while this situation bears watching, Visa’s and Mastercard’s global networks remain unparalleled, and we think this will remain the case for many years to come. Ultimately, this should put something of a floor on the situation.Visa obviously has sensitivity to the volume of consumer transactions, and the U.S. remains its largest market, making up 37% of dollar volume in fiscal 2018. A downturn in the economy would slow growth. Outside of that, though, we don’t see any industry trends that will impede Visa’s ability to maintain double-digit growth in the coming years, and the inherent scalability of the business should allow the company to modestly expand its already ample margins if this plays out.