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>>> How Visa Makes Money

Visa's data processing and services segments generate the most revenue


Investopedia

By NATHAN REIFF

Sep 21, 2020


https://www.investopedia.com/how-visa-makes-money-4799098?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral&yptr=yahoo


Visa Inc. (V) is one of the dominant digital payments brands globally, providing services about 200 nations to individual consumers, merchants, financial institutions, and governments.1

?While best known for its Visa credit card used by millions of consumers, the company provides an unusually broad range of services. That includes authorization, clearing, and settlement services for financial institutions and merchants; and credit, debit, and prepaid card services to consumers and businesses.1?

Visa makes its profits by selling services as a middleman between financial institutions and merchants. The company does not profit from the interest charged on Visa-branded card payments, which instead goes to the card-issuing financial institution.1? Visa so dominates the market that it has only a handful of big rivals, including Mastercard Inc. (MA), as well as digital payments companies such as PayPal Holdings Inc. (PYPL).

KEY TAKEAWAYS

Visa is a digital payments company providing transactions between financial institutions, consumers, merchants, and banks.
The company's data processing operations generate the largest portion of revenue.

Visa's strategy is to aggressively expand its presence in contactless payments, e-commerce, and other digital vehicles.

Visa recently extended its global partnership with PayPal, enabling the expansion of real-time access to funds for individuals and small businesses.

Visa's Financials

Visa's business was adversely impacted during Q3 of its 2020 fiscal year (FY), the three-month period that ended June 30, 2020. The company reported net income of $2.4 billion on $4.8 billion of net revenue. Net income fell 23.5% while net revenue fell 17.2% compared to the same quarter a year ago.2?

Net revenue from Visa's U.S. business, which comprises about 49% of total net revenue, fell 8.0% compared to the year-ago quarter. Net revenue from international sources, which accounts for the remaining 51% of total net revenue, fell 24.5%. Visa indicated that these revenue declines were mostly due to year-over-year (YOY) changes in payments volume, cross-border volume, and processed transactions, all of which were impacted by COVID-19.3?

Visa's Business Segments

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.4? These segments are: Service Revenue, Data Processing Revenue, International Transaction Revenue, and Other Revenue.4? Visa describes these subsegments as "components" of net revenue, but they are reported gross of client incentives. The sum of the revenue totals for each segment equals gross revenue of about $6.4 billion for Q3 FY 2020. Visa's net revenue of $4.8 billion for the quarter is equal to that gross revenue figure minus client incentives.5?

Service Revenue

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 is included elsewhere.6? In Q3 FY 2020, Visa's service revenue was $2.4 billion, or about 38% of the company's total gross revenue. This is up 0.2% YOY.5?

Data Processing Revenue

Visa's data processing revenue includes all revenue generated as a result of the company's clearing, settlement, authorization, network access and similar services.6? In Q3 FY 2020, data processing revenue accounted for the largest portion of the company's gross revenue: $2.5 billion or about 40%. This figure is down 5.1% YOY.5?

International Transaction Revenue

Visa is heavily involved in cross-border transaction processing and currency conversion, and these activities generate revenue in the subsegment of international transaction revenue.6? In Q3 FY 2020, international transaction revenue was $1.1 billion, or more than 17% of gross revenue. Revenue for this component was down 44.3%.5?

Other Revenue

Visa also earns revenue from license fees, value-added services, account holder services, and more. These sources are grouped together as Other.6? At $314 million or nearly 5% of Visa's Q3 FY 2020 gross revenue, the Other component accounts for the smallest portion of revenue. Other revenue fell 8.2% YOY.5?

Visa's Recent Developments

Visa recently announced that it extended its global partnership with PayPal. The extension of the partnership will enable the expansion of real-time access to funds for consumers and small businesses that are sending or receiving money using PayPal, Venmo, or Xoom. It will expand PayPal's Instant Transfer services, which leverages Visa Direct for real-time payments.7?

How Visa Reports Diversity & Inclusiveness

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. It shows whether Visa discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ?. It also shows whether Visa breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

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