Visa is one of those businesses that is easy to describe and hard to bet against. It runs a network that sits between banks and merchants, takes a small cut of the money that flows across it, and the volume of that money has gone up almost every year for decades. A reader asked me recently whether the payments giants are finally facing a real threat from instant bank transfers and stablecoins, or whether that is another story that never quite arrives. My view is that the threat is real but slow, and the more useful question is what Visa’s growth looks like on the other side of it.
The Toll Road, and Why It Has Held
Visa’s economics are close to ideal. Operating margins run in the mid sixties as a percentage of revenue. The incremental cost of processing one more transaction is almost nothing, so revenue growth drops through to profit. The company converts most of its earnings to free cash flow and returns nearly all of it through buybacks and a growing dividend, and the Visa financials page lays out that margin and cash flow profile in one place. Growth has three layers: the long shift from cash to cards that still has room to run outside the United States, rising consumer spending overall, and cross-border payments, which carry higher fees and rebound strongly whenever international travel is healthy.
On top of that, Visa has been building a fourth layer it calls value-added services: fraud tools, data products, consulting, and processing capabilities it sells to banks and merchants on top of the core network. That segment grows faster than payments volume and makes the company less dependent on transaction fees alone. It is the part of the story management most wants investors to focus on, and it is a reasonable ask.
Who Builds the Bypass
The threats to a toll road are all versions of the same idea: route the traffic around it. Three are worth taking seriously. Real-time bank-to-bank payment systems, backed by governments in many countries, let money move directly between accounts with no card network in the middle. Stablecoins do something similar using blockchain rails, and they are getting regulatory clarity in the United States that they did not have before. And regulators themselves keep pushing on interchange fees, with proposed legislation that would force large banks to offer merchants a network choice other than Visa or Mastercard on credit transactions.
The cautionary example everyone points to is Brazil, where a government-run instant payment system took a large share of transaction volume from cards within a few years. That is a real outcome, not a hypothetical. What it also showed is that the shift happened fastest in person-to-person payments and low-value transactions, the least profitable part of the card business, while cards held onto e-commerce and higher-value retail spending better than the bears expected. Visa’s response has been to try to own pieces of the new rails rather than fight them, including its own work on stablecoin settlement and account-to-account services.
The Forecast: Slower, Not Broken
Payments volume growth has settled from the mid teens during the post-pandemic recovery to something closer to high single digits. That is the new normal, and it is fine. Add a bit of pricing, the faster growth in value-added services, the buyback shrinking the share count by two to three percent a year, and a dividend that keeps rising off a low base, the kind of profile I have argued beats a high starting yield over time, and Visa can still compound earnings per share in the low double digits without needing anything heroic to happen. The workarounds chip at the edges rather than taking the core. Over a five-year horizon I expect Visa to grow more slowly than it did in the 2010s and still outgrow the market.
| Threat | How fast it moves | What it actually takes |
|---|---|---|
| Real-time bank transfers | Years, country by country | Low-value and person-to-person volume first |
| Stablecoins | Early, now getting rules | Cross-border and settlement, where Visa is also playing |
| Interchange regulation | Slow, politically contested | A slice of US credit routing, not the network itself |
Where I Land
Visa trades around thirty times forward earnings, which is a premium to the market and a slight discount to its own recent history. For a business with these margins, this cash conversion, and a growth rate that is slower but still healthy, I think that is a fair price rather than a cheap one. I own it as a core holding and treat it as a compounder I do not need to think about often. What would change my mind is evidence that the bypass is reaching higher-value transactions faster than expected, or a US regulatory outcome that forces network choice on a large share of credit volume. Absent that, the base case is steady low-double-digit earnings growth, and I am content to own that. The Visa quote page has the live valuation and momentum read, and the quant rating tool is worth a look for how the premium multiple scores against the still-healthy growth.
Gavin Thorne writes on equity strategy and company-level research. This article reflects his personal research process and is intended for informational purposes only. It does not constitute investment advice.