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How Visa’s Operating Profit Margins Beat Its Competitors

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Technology upgrades

Visa (V) reported total transactions of $30.2 billion in 3Q16 compared to $27 billion in 3Q15, a growth of 11.8% year-over-year. Total transactions represent the payments and cash transactions reported by the company’s clients on their operating certificates.

Advancement in technology and increasing consumer shift (particularly in developing nations with a large untapped market) to the electronic medium of purchased and business helps procreate growth of organized global payment processing industry. Visa is well-positioned to benefit from policy measures that promote market-driven electronic payment solutions and therefore increased card penetration.

The company has witnessed a consistent increase in the total number of transactions over the past couple of years. Moreover, the company is investing more resources in technology upgrades to support increased spending through online transactions.

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Visa’s US transactions recorded growth of 11% while its international transactions growth reached 7%. International transactions grew at a higher-than-expected rate even in the face of weakness in China and oil-based economies (USO). Looking at Visa’s spending composition of its total transactions, 38% were credit transactions and the remainder were executed with debit cards.

Visa achieved operating profit margins of 65% in the last fiscal year, which ended on September 30, 2015. Here’s how some of Visa’s peers in the payment-processing industry fared with their operating margins in the last fiscal year:

  • Mastercard (MA): 54%
  • American Express (AXP): 25%
  • Discover Financial Services (DFS): 43.6%

Processed transactions

Processed transactions grew at 11% to $19.8 billion in the June 2016 quarter. Processed transactions represent transactions involving Visa, Visa Electron, Interlink, and PLUS cards processed via Visa’s networks.

Visa’s international growth rate in transactions is picking up on expected lines due to a transfer of domestic processing to NSPK in Russia.  Visa transferred the domestic processing of its payments to the new National Payment Card System of Russia in April 2015.

Visa expects the transaction growth to further pick up in the next quarter with the inclusion on Visa Europe numbers and accretion, a stable dollar, and improvement in energy prices.

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