Visa dates back to 1958 when it was formed as BankAmericard, before being rebranded in 1976 to the name we know today. As the world’s largest money movement network, it enables secure, fast and convenient transactions worldwide.
ROBUST COMPETITIVE ADVANTAGE
Visa has substantial scale and intellectual property in payments. The numbers are staggering – the network covers more than 200 countries and territories, and services over 100 million merchant locations and 15 000 financial institutions. In 2024, the company recorded more than 270 billion transactions and total payment volumes of US$13 trillion.
In our view, Visa has a quality management team that has evolved its strategy over the years to meet changing industry dynamics as well as align the company with future trends. Even in times of stress and challenging economic conditions, Visa has been able to grow its net revenue. During the Great Financial Crisis, it continued to grow when other industries struggled. During periods of rising inflation, the company’s revenue tends to accelerate, as it is tied to the real value of money flowing on its platform.
The nature of the Visa business model, with payments flowing into the top of the funnel, efficient management of expenses and disciplined capital allocation, has resulted in prodigious cash-flow generation. Over the long term, Visa has converted on average 45% of its net revenue into free cash flow. A modest portion of this cash flow is used to fund bolt-on acquisitions, which typically add recurring, subscription-based revenue streams and new capabilities. Most excess cash is returned to shareholders.
A BRIGHT FUTURE
Visa is committed to innovation and delivering superior consumer and business payment experiences. It aims to capture growth through key strategic initiatives in consumer and commercial payments, and in areas outside payment flows through what it calls value-added services (VAS).
We believe VAS are a particularly exciting growth opportunity as Visa can layer these on top of its payment infrastructure to enhance customer experience. These services are in the areas of risk management, artificial intelligence (AI)-driven fraud and risk solutions, cybersecurity and data insights. In 2024 alone, the company added 30 new products and AI-driven capabilities to its suite of services.
In our view, the company’s strong position in payments, coupled with its innovative expansion into new markets and VAS, underscores its potential for sustained growth and cash flow generation.
We have held Visa since we established a large position in the fourth quarter of 2021 after thorough, in-depth research. The share has materially outperformed the Sanlam Global High Quality Fund’s benchmark since then and remains a sizable position within the fund.
