What does visa do

Without further ado, let's take a closer look at this market-beating investment and determine exactly how it creates all those profits for investors.

Because a lot of confusion exists on this point, let's start with how Visa does not make money. Therefore, when consumers make credit card payments Visa does not profit from the interest rates charged by the card.

The money being borrowed is from the card-issuing financial institution, such as JPMorgan Chase or Capital One , and thus all interest expenses paid on a Visa-branded credit card goes to the card issuer.

There are pros and cons to this model. The obvious downside is that consumers pay a lot of credit card interest each year and none of that revenue goes to Visa.

The positive is that Visa faces none of the default risk that comes from lending money. For what it's worth, Wall Street tends to assign much higher valuations to companies that do not face loan default risk. Visa essentially acts as the middleman in a four-party model which, besides Visa, includes the card-issuing financial institution, the merchant, and the acquirers the merchant's bank. According to the company's K report, its annual filing with the SEC, every time a card is used Visa collects fees, as tiny slivers taken out of each transaction amount it can vary depending on the card-issuing bank and merchant where it is used , in three main ways: service revenues, data processing revenues, and international transaction revenues.

Service revenues are what the company earns for services provided to card issuers for the use of Visa products. The primary driver of this revenue category is payment volume. In other words, the more a product costs, the more revenue Visa makes in this category.

For example, a gallon of milk will not bring in nearly as much service revenue as a brand-new energy-efficient refrigerator. What makes this type of revenue special is that it is a built-in hedge against inflation. If the cost of widgets rises due to consumer inflation, Visa's and Mastercard's revenue will automatically grow right along with it!

Data processing revenues are the microscopic fees Visa collects for the authorization, settlement, clearing, and other various access and maintenance fees for its vast payment network. These revenues are based on the number of transactions that are made across Visa's network; not how much money is being charged. What exactly do these terms mean? Well, the authorization is the process by which Visa routes the transaction from the point-of-sale to the card issuer for approval.

The clearing is the exchange of the transaction information between the issuer and acquirer after a sale is made and authorized while the settlement is the facilitation of the actual exchange of funds between the involved parties. Finally, international transaction revenues are earned for cross-border and currency conversion activities. These revenues are generated whenever a card holder purchases goods in a country different from the card-issuers country of origin.

The decrease in net revenues, however, was partly offset by growth in nominal payments volume and processed transactions. Visa reports as a single segment, which is Payment Services. But it routinely divides its revenue into four subsegments, which are the major generators of revenue for the company. Visa's service subsegment consists of revenue from services provided to support client usage of Visa's payment services.

This is separate from the authorization, clearing, and settlement related to the company's payment services, which are included elsewhere. This is up 4. Visa's data processing revenue includes all revenue generated as a result of the company's clearing, settlement, authorization, value-added, network access, and other similar services.

This figure is up 5. Visa is heavily involved in cross-border transaction processing and currency conversion, and these activities generate revenue in the subsegment of international transaction revenue.

Revenue for this component was down Visa also earns revenue from license fees, value-added services, account holder services, and more. These sources are grouped together as Other. Other revenue rose 5. On Nov. It marks Visa's first acquisition of this kind in the region and will help to accelerate the company's "network of networks" strategy.

Visa said it will now be able to offer a single point of access for initiating different types of transactions and enabling the secure transfer of money. Visa issued a statement contesting the decision by the DOJ, indicating that it plans to vigorously defend the transaction. On Jan. Visa also agreed with the DOJ to dismiss the litigation related to the proposed transaction.

As part of our effort to improve the awareness of the importance of diversity in companies , we offer investors a glimpse into the transparency of Visa and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Visa releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. Accessed Nov. Accessed Jan. The Wall Street Journal. Credit Cards. Top Stocks. Company Profiles. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. Visa is responsible for collecting these fees via the settlement process. However, Visa typically doesn't receive a portion of these interchange fees.

Visa intends to expand into the digital payments space as society moves towards cashless transactions. They are focused on expanding their presence in the cashless payments space via tap to pay, click to pay, digital wallets, and cross-border transactions. In the B2B sector, they will continue to focus on settlement, card solutions, and accounts receivable management.

Finally, Visa is tremendously focused on emerging markets where the company sees the best growth potential in the next decade. Visa believes it's a good fit with its "network of networks" strategy, as evidenced by its recent acquisition of the fintech Yellow Pepper in Yellow Pepper supports startups and leading financial institutions in the Caribbean and Latin America.

The company also sees significant opportunities in Asia through IoT and digital wallets. Visa is the world leader in card-based payment systems. The company doesn't have many large competitors except for Mastercard and perhaps American Express.

However, Amex is a closed-loop system, whereas the open-loop system of Visa offers it better potential for growth across all payment networks. Chinese payment processor Alipay also have eyes on international expansion, encroaching on markets that were previously left to the "Western" payment processors.

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Crypto exchanges Stock trading platforms. Budgeting Business models Careers Daily routines. Home Business models How does Visa make money? How does Visa make money? Visa is the global leader in credit cards, with over 2. Visa is an intermediary that enables banks to issue credit and debit cards to consumers and helps merchant acquirers facilitate payments between banks and merchants.

Looking ahead, Visa is betting on contactless and digital payments as well as international growth.