Visa Counts the Pennies
If you swipe your credit card for a $20 large-base cheese and tomato pizza at Domino’s, Domino’s won’t see all $20. Visa takes a tiny percentage of that money, 2.5-3%, as rent for the privilege of receiving a credit card payment.
It’s called an “interchange rate,” and Domino’s, along with thousands of other shopkeepers, aim to shift that bill back on you for opting to pay with a credit card.
These interchange rates mean the world to investors because the pennies add up! A Nilson Report estimates over $107.8 billion was spent by shopkeepers industry-wide to accept cards in 2018, a sum leveraged over the past ten years by network effects, and now growing double-digits.
The more impulsive spending by customers with credit cards, the more shopkeepers want to accept them. The more shopkeepers accept them, the more impulsive spending by customers with credit cards. Now that Visa is on top of the world, it’s finally going to stir things up and change these all-important charges!
April and November will see flying e-commerce companies pay more, while schools, hospitals, libraries, and struggling retailers, pay less. The latter organizations were on the verge of walking away, so traders will be tracking card retention and growth data to predict price movements in the upcoming quarters.
Longer-term investors, however, can still live off their dividends under the hot sun. “Big” Visa and “little” Mastercard (which is under pressure to follow suit) have cast aside disruptive fintech with the strength of their networks and reputation. Visa investors get a steady dividend, continuous share repurchases, and an inflation-fighter to anchor their portfolio. $203 well spent, plus $5 for the broker’s “interchange” fee? You decide!