The Good (And Not So Old) Visa

January 21, 2026

Against much of the advice I’ve received, I decided to write publicly about some of my investment theses. People who care deeply about me - as well as seasoned investors - have warned that sharing investment ideas publicly comes with two significant drawbacks.

The first, and most obvious one, is that you’re working for free. Anyone can read your thesis and replicate it without paying a fee. That’s true. But it’s also true that long-term successful portfolio managers don’t succeed merely by identifying a great business. Risk assessment, position sizing, portfolio construction, patience, long-term perspective, and continuous monitoring of what is - and isn’t - playing out as expected are all critical components of performance, and far harder to copy than a written thesis.

The second concern is that publicly sharing an investment thesis can make a portfolio manager reluctant to admit mistakes and change course if the thesis proves wrong. Frankly, I find this argument misguided. I’m paid to allocate capital based on the best information available at any given time. If new information emerges, if the company fails to deliver on the thesis, or if I simply missed a risk, changing my view is not a failure - it’s part of the job. What’s truly dangerous is not being wrong, but being wrong and failing to recognize it quickly and learn from it. Building a portfolio, is a never-ending craft. The work of the crafter can improve or deteriorate over time, but it is never perfect, and there is always room for refinement.

Finally, as a capital allocator, I believe it is both valuable and enjoyable to share ideas with investors, prospective investors, and other market participants. These discussions often surface questions I hadn’t considered - or deceptively simple ones that force me to distill a more complex thesis into two or three clear, intuitive points that anyone can understand.

So, against most advice, here we go. The first public investment thesis of Why Capital is the good (and not so old): Visa!

Company History:

When someone without much knowledge about the payment and banking industries look at Visa and Mastercard, usually they believe those companies are mature businesses fated to low revenue growth or that those companies are incumbents trying to survive the new era of crypto currencies, open banking, digital wallets, and fintechs. Actually, it is quite the opposite. Both Visa and Mastercard are leveraging current competitive advantages in their mature payment network business to play offense in new spaces at the same time they adopt new technologies within their tech stack and entrench even further their market leadership as duopoly kings.

But, before we jump in the tremendous market opportunities that are sitting in front Visa, let us to take a step back and understand how the company became one of the greatest business in the world.

The history of Visa is fundamentally the story of how a chaotic experiment in consumer credit was engineered into one of the world’s most durable economic moats. The company’s fortress was not built overnight; it was constructed through three distinct phases: a brute-force creation of the network effect, a radical restructuring of ownership to align the banking industry, and a technological pivot that replaced paper with digital infrastructure.

The foundation of Visa’s network effect was laid in September 1958 with an event known as the "Fresno Drop." At the time, credit cards were niche products because of the classic "chicken-and-egg" problem: merchants wouldn’t accept a card that no one carried, and consumers wouldn’t carry a card that no one accepted. Bank of America, attempting to launch the BankAmericard (Visa’s predecessor), decided to solve this by force. They mailed 60,000 active credit cards to virtually every household in Fresno, California, all at once. This created an instant supply of customers, which compelled local merchants to sign up immediately. While this experiment resulted in massive initial fraud losses, it proved that the only way to build a payment network was to achieve critical mass instantly. This aggressive strategy of mass issuance became the blueprint for the industry, jumpstarting the flywheel that would eventually become Visa’s widest moat.

However, the true widening of the moat occurred in the 1970s under the leadership of Dee Hock, Visa’s visionary founder. By this time, the BankAmericard program was struggling to expand outside of California because other banks were reluctant to license a product owned by their competitor, Bank of America. Hock realized that for the network to become truly universal, it could not be owned by a single entity. In a brilliant strategic pivot, he reorganized the system into a non-stock, member-owned consortium called National BankAmericard Inc. (NBI). This masterstroke aligned the incentives of the entire banking industry. Instead of competing with the network, banks became owners of the network. This structural change eliminated the incentive for banks to build rival systems, effectively locking the entire US banking sector into what would become the Visa ecosystem. To solidify this global dominance, the separate international brands were united in 1976 under a single name chosen because it was pronounced the same in almost every language: Visa. This branding strategy turned a fractured collection of bank cards into a universally recognized intangible asset of trust.

Simultaneously, Visa began building its cost advantage and switching costs through technology. In 1973, the company launched BASE I, the world’s first electronic authorization system. Before this, merchants had to make phone calls or flip through paper books of "bad card numbers" to approve transactions - a slow and error-prone process. BASE I allowed merchants to authorize a purchase in seconds. This was not just an operational upgrade; it was a strategic lock-in. Once banks and merchants integrated their operations with Visa’s electronic architecture, the cost of ripping out that infrastructure to switch to a manual or alternative system became prohibitive. This moment marked the transition of Visa from a credit card association into a technology company.

The final and perhaps most critical evolution in securing Visa’s modern dominance began in the mid-2000s, driven by the realization that the member-owned consortium model - once its greatest strength - had become a suffocating liability. As the digital age accelerated, the slow, consensus-based decision-making of thousands of member banks paralyzed Visa’s ability to innovate against agile tech competitors. This necessitated the massive 2008 IPO, which was not merely a financial transaction but a strategic liberation. By becoming an independent public company, Visa broke free from the conflicting interests of its bank owners, gaining the autonomy and capital to aggressively attack the global "war on cash." This independence allowed them to finally unify their fractured empire, most notably by reacquiring Visa Europe in 2016, stitching together a truly seamless global network that no fragmented regional competitor could match.

In the years following the IPO, Visa radically redefined its business model through a strategy known as the "Network of Networks," effectively pivoting from a card company to a digital infrastructure giant. Recognizing that the future of money was moving slowly away from plastic, the company made the pivotal decision in 2016 to launch the Visa Developer Platform, opening its once-closed "black box" technology to outsiders. This masterstroke transformed Visa from a gatekeeper into an enabler; instead of fighting fintechs like Stripe, Square, or Big Tech giants like Apple, Visa invited them to plug directly into its rails. Simultaneously, they aggressively acquired infrastructure players like Tink and Currencycloud, and built "Visa Direct" to handle real-time bank transfers. This ensured that whether money moves via a plastic card, a smartphone tap, or a B2B cross-border transfer, it still travels over Visa’s rails, cementing its status today not just as a payment processor, but as the indispensable data layer of the global digital economy.

Current Competitive Advantages & Moats:

Today, Visa’s economic moats are exceptionally wide and durable because they function as a self-reinforcing ecosystem where each advantage protects and strengthens the others. The durability of this business model is rooted in the fact that Visa is not merely a credit card company, but the operating system for global commerce - a position that has become even more entrenched with the rise of digital finance.

The foundation of Visa’s dominance is its massive network effect, which is arguably the widest in the financial world. This moat operates on a simple but powerful feedback loop: because billions of consumers carry a Visa card, millions of merchants are effectively forced to accept it to remain competitive. Conversely, because acceptance is near-universal, banks are incentivized to issue Visa cards over competing brands to ensure their customers can pay anywhere. This "two-sided market" creates a barrier to entry that is nearly impossible for a challenger to overcome purely through capital. A new competitor cannot simply buy market share; they would need to simultaneously convince millions of merchants to install new terminals and millions of consumers to carry a new card, a logistical impossibility that protects Visa from standard disruption.

What makes this network effect surprisingly durable is how it adapted to the smartphone era. When Apple Pay and Google Wallet launched, they did not build parallel networks; they built on top of Visa’s existing rails. Rather than disintermediating Visa, these digital wallets reduced the friction of using Visa’s network, effectively extending the physical card’s reach into the digital realm. By becoming the underlying infrastructure for these tech giants, Visa transformed a potential existential threat into a new distribution channel, ensuring that its network effect now spans both the physical and digital worlds.

Complementing the network effect are the high switching costs embedded in the banking system. For the thousands of banks that issue cards, Visa is deeply integrated into their core banking software and risk management systems. Switching a portfolio to a different network is not just a matter of signing a new contract; it involves the massive logistical headache of reissuing millions of physical cards, retraining customer service staff, and risking transaction failures during the migration. These operational risks create a powerful form of inertia. Banks prefer the stability and reliability of Visa’s proven infrastructure over the marginal potential gains of a cheaper, unproven competitor, effectively locking in the supply side of Visa's network.

This lock-in is further cemented by intangible assets, specifically brand trust and security technology. In the payments industry, the "Visa" brand functions as a global guarantee of acceptance and security. This trust has been digitized through tokenization, a technology where Visa replaces sensitive card numbers with unique digital tokens for online and mobile transactions. By issuing billions of these tokens, Visa has embedded itself into the code of countless subscription services, streaming platforms, and e-commerce sites. This creates a technical moat: even if a consumer wanted to leave the Visa ecosystem, they would have to manually update their payment details across dozens of fragmented digital services. This "digital stickiness" makes the customer relationship far more durable than it was in the era of plastic-only payments.

Finally, Visa enjoys a massive cost advantage driven by scale. Payment processing is a business of fixed costs; it costs roughly the same amount of money to run the data centers and fraud detection algorithms whether they process one transaction or one billion. Because Visa processes hundreds of billions of transactions annually, the marginal cost of each additional swipe is negligible. This allows Visa to maintain extraordinary operating margins that smaller competitors cannot match. A new entrant would have to spend billions on infrastructure and security to achieve the same speed and reliability, yet they would have to charge higher fees to recoup those costs, making them uncompetitive from day one. This scale ensures that Visa remains the most efficient provider in the market, insulating its profits from competition.

Expansion Opportunities:

Commercial & Money Movement Solutions:

So far, we have discussed only how Visa built an impenetrable defense around its core business, but it is arguably more important to understand how the company is playing offense and is trying to expand its Total Addressable Market.

The "low growth" narrative often surrounding Visa is predicated on the myopic assumption that the company has saturated its market. This view is flawed because it limits Visa’s scope to traditional Consumer Payments (C2B) - a $40 trillion market. However, Visa has aggressively expanded its strategy to target a staggering $200 trillion opportunity in "New Flows" through its division called Commercial & Money Movement Solutions. According to Visa, this expanded addressable market comprises roughly $55 trillion across P2P, B2C, and G2C payments, plus an additional $145 trillion in B2B payments. By attacking these verticals, Visa is effectively transitioning from a card network into a diversified "Network of Networks," leveraging its moats to capture money movement in every direction - not just between a shopper and a register.

The primary engine for expanding into these New Flows is Visa Direct, a platform that fundamentally reversed the card network’s mechanics. Historically, payment networks were designed for "pull" transactions, where a merchant pulls funds from a consumer. Visa Direct re-engineered the rails to allow funds to be "pushed" in real-time to billions of endpoints, including cards, bank accounts, and digital wallets. This innovation has positioned Visa as the invisible plumbing behind the fintech revolution. Many of the most successful challengers in the financial space - NuBank, Revolut, Chime, and N26 - are not disrupting Visa; they are built on top of it. For instance, Chime utilizes Visa Direct to power its "MyPay" feature, solving liquidity issues for hourly workers by allowing them to access wages instantly. Similarly, N26 and Revolut leverage these rails to facilitate instant account top-ups, ensuring funds are available immediately rather than days later. By serving as the backend infrastructure for these neobanks, Visa ensures that as the fintech sector grows, its own volume grows with it.

This "push" capability has also disrupted the predatory landscape of cross-border remittances. Companies like Remitly have realized that physically mailing cash or using slow wire transfers is obsolete. By partnering with Visa Direct, Remitly achieved a 130x increase in payment volume over a five-year period, allowing migrant workers to send money from the US or Europe directly to a family member's debit card in the Philippines or Mexico instantly.

To further entrench itself in the digital ecosystem, Visa launched Visa+ to solve the fragmentation of the "walled garden" era. A major friction in modern payments is the inability of different peer-to-peer apps to communicate; typically, a Venmo user cannot pay a Cash App user. Visa+ acts as an interoperability layer, creating a personalized payment handle that translates between these competing platforms, ensuring that even when a physical Visa card is not involved, Visa remains central to the transaction.

Parallel to these consumer innovations, Visa is aggressively digitizing the massive $145 trillion B2B market. While consumer payments are high-volume and low-value, B2B payments are the opposite, yet they remain plagued by paper checks and opaque processes. Visa estimates a $25 trillion opportunity for Visa Direct and a $35 trillion opportunity for Virtual Cards within this space. To capture this, the company launched Visa B2B Connect, a non-card, blockchain-inspired network adopted by major institutions like Citibank. Unlike the legacy SWIFT network, which can be slow and unpredictable, B2B Connect offers global banks and multinational corporations distinct clarity on fees and delivery times, allowing CFOs to move millions across borders with the same certainty as a consumer buying a coffee. Furthermore, through deep integrations with expense management platforms like SAP Concur and fintechs like Brex and Ramp, Visa is replacing corporate invoices with virtual cards. This not only reduces fraud but turns Visa into a data analytics partner, providing companies with granular visibility into employee spending.

Value-Added Services:

Beyond processing payments, Visa has unlocked a high-margin growth engine in its Value-Added Services (VAS) division. The company realized that because it sees more transaction data than any single bank or merchant, it could sell products on top of the transaction rails. A prime example is Cybersource, Visa’s fraud management platform. Because Visa’s AI trains on billions of global transactions, its ability to detect anomalies is superior to standalone solutions, leading merchants to pay a premium for this security "insurance."

Visa has further bolstered this division through strategic acquisitions that turn potential threats into assets. The acquisition of Tink, a European open banking platform, allows Visa to facilitate payments and data sharing directly from bank accounts, bypassing cards entirely. Even more critical was the 2023 acquisition of Pismo, a cloud-native core banking platform. Pismo allows banks to issue cards and manage accounts, meaning Visa now provides the very infrastructure that banks run on. This creates arguably the highest switching cost in the industry; for a client to leave Visa, they would not just need to switch networks, but migrate their entire core banking system.

Finally, the ultimate testament to Visa’s offensive mindset is its calculated embrace of Account-to-Account (A2A) payments - a phenomenon often cited by bears as the greatest existential threat to the card business. Recognizing that government-backed real-time payment systems (RTP) pose a risk to traditional debit interchange fees, Visa has chosen to effectively cannibalize its own volume rather than cede the market to regulators. This strategy is best understood through its maneuvers in Brazil, the UK, and the United States, where Visa is repositioning itself from a "card network" to a "payment orchestrator" that sits above the rails.

In Brazil, the government’s instant payment system, PIX, has seen explosive adoption, effectively bypassing card networks for millions of transactions. Rather than fighting this tide, Visa acquired Pismo in Brazil, which was a masterstroke move in infrastructure hedging: Pismo provides the technical backbone that banks use to issue cards and, crucially, to process PIX transactions. By owning Pismo, Visa captures value even when a transaction occurs on the PIX rail, effectively monetizing the very system designed to disrupt it. Furthermore, Visa is actively integrating PIX into its own acceptance points, allowing merchants to accept PIX payments through Visa’s secure gateway, ensuring that Visa remains the merchant’s primary interface regardless of the underlying settlement method.

In Europe, specifically the UK, Visa is leveraging its acquisition of Tink to solve the primary deficit of A2A payments: the lack of consumer protection. While Open Banking allows for cheap, direct bank transfers, it lacks the "dispute resolution" and "trust" inherent in a card transaction - if a consumer buys a defective product via a direct bank transfer, they have little recourse. Visa’s new A2A product in the UK uses Tink’s connectivity to 6,000 European banks to facilitate the transfer, but wraps the transaction in Visa’s proprietary dispute resolution and fraud detection standards. This transforms a raw, risky bank transfer into a premium, protected commerce experience. Visa is essentially betting that consumers and merchants will pay a premium for the "safety wrapper" of the Visa brand, even if the money travels over public banking rails.

This "wrapper" strategy is precisely how Visa is positioning itself to take advantage of FedNow in the United States too. While some investors view the Federal Reserve’s real-time payment rail as a "Visa killer," Visa views it as a commoditized settlement layer. FedNow is a "dumb pipe" - it moves money instantly but lacks the complex rulebooks, fraud scoring, and directory services required for functional consumer commerce. Visa is actively building overlay services on top of FedNow, positioning itself to handle the "last mile" of the transaction. In this scenario, FedNow handles the low-margin movement of funds between banks, while Visa charges for the high-margin value-added services: tokenization, fraud monitoring (via Cybersource), and alias directory management. By treating FedNow as a utility to be exploited rather than a competitor to be feared, Visa ensures that however money moves - whether by plastic, smartphone tap, PIX, or a FedNow transfer - it travels through Visa’s ecosystem of trust.

Market Size & Competition:

To fully appreciate the resilience of the Visa thesis, one must dissect the competitive dynamics across the specific sub-segments where the company operates. Critics often make the mistake of viewing the payments landscape as a flat monolith, assuming that competition in one area (like online gateways) equates to an existential threat to the whole. In reality, the payments value chain is a complex stack, and Visa has strategically positioned itself to be a dominant force in every layer. A closer examination of these distinct battlegrounds illustrates how Visa’s entrenched competitive advantages guarantee leadership across the board.

The core network business remains the foundation of this supremacy, effectively operating as a global duopoly between Visa and Mastercard. While UnionPay dominates domestically in China due to regulatory protection, and American Express operates a successful closed-loop model targeting premium customers, the global open-loop market is a two-horse race where scale is the only metric that matters. In this segment, Visa is the undisputed heavyweight champion, holding approximately 57% of global total payment volume (excluding China) in the credit and debit segment, followed by Mastercard with 35%. The barrier to entry for a potential challenger is virtually infinite because a competitor cannot simply build a new network; they would need to replicate sixty years of trust and infrastructure implementation across two hundred countries simultaneously. Visa’s advantage is not merely its size, but its ubiquity, having become the standard dial-tone of the global economy that works everywhere, every time - as we discussed previously.

Moving upstream to issuer processing, the battle is between legacy stability and modern agility. Historically, this market was dominated by slow-moving incumbents like Fiserv, FIS, and TSYS, which provided stable but rigid infrastructure. However, Visa has aggressively navigated this dynamic through its internal unit, Visa DPS, which is now the largest issuer processor of Visa transactions globally, processing approximately 50% of all Visa debit transactions in the U.S. alone. By controlling this layer, Visa creates a high switching cost nested within its broader moat. When a bank utilizes Visa for processing, they are not just issuing Visa cards, their entire operational backend runs on Visa’s code. This deep integration allows issuers to launch new products by leveraging Visa’s R&D rather than building it themselves, ensuring that banks remain loyal to the Visa ecosystem not out of obligation, but out of technological necessity.

On the front lines of e-commerce, the online gateway and merchant acceptance segment is perhaps the most crowded, featuring fierce competition from agile aggregators like Stripe, Adyen, and PayPal (Braintree). While the market is highly fragmented, with no single player holding a double-digit percentage of global volume, Visa’s proprietary gateway, Cybersource, has cemented itself as a top-tier provider for the enterprise sector. Cybersource competes directly with the tech giants for the business of large multinationals like airlines and streaming platforms. In this specific high-volume arena, Cybersource offers a distinct advantage: because it is natively integrated into VisaNet - the proprietary global transaction processing network that serves as the central nervous system of Visa’s entire business - it offers higher authorization rates and lower latency than third-party alternatives. Thus, while Stripe may capture the startup market, Visa retains the massive volumes of the Fortune 500.

In the booming sub-segment of fraud and security, Visa leverages a massive data asymmetry advantage over specialized firms like Forter and Riskified. In the world of AI and fraud detection, the winner is invariably the entity with the most data, and Visa monetizes the protection of roughly +50% of the world’s card transactions. While a standalone provider sees only the transactions of their specific merchant clients, Visa sees the entire canvas - over 300 billion transactions annually. This allows Visa to identify fraud patterns that isolated competitors miss, transforming the company from a commodity processor into a premium security partner that merchants cannot afford to ignore.

Finally, in the expansion layer of "New Flows" and fintech, Visa has executed a textbook strategy to embrace and extend. Through Visa Direct, the company has secured a dominant position in the real-time payments space, processing 10 billion transactions in FY2025 alone. In the U.S. gig economy - covering payouts for drivers on platforms like Lyft and DoorDash - Visa Direct commands an estimated 55-60% share of instant payouts, outpacing Mastercard Send due to higher debit card penetration. By partnering with major platforms rather than fighting them, Visa ensures that whether money is moving via a crypto exchange like Coinbase or a driver payout, the transaction fees still accrue to the incumbent king.

Ultimately, Visa’s market positioning is that it does not need to win every single battle to win the war, it simply needs to remain the indispensable infrastructure that connects them all - being the "Network of the Networks". By dominating the network layer with Mastercard, vertically integrating with issuers against legacy processors, providing the security wrapper for merchants, and serving as the primary rail for gig-economy payouts, Visa has constructed a business model that is structurally hedged against disruption. In every relevant segment of the payments market, Visa is either the primary player or a very relevant partner, guaranteeing its leadership for decades to come. Moreover, the bundling of all those solutions has an increased value proposition for customers (e.g., banks, fintechs, digital wallets, etc) at the same time it offers a way for Visa to increase its switching cost and network value.

Main Risk & Mitigants:

When investing in Visa for the long term, the primary risk to monitor is not simply general technological obsolescence, but specifically the evolution of global money movement solutions. The central question for the next decade is which set of different payment arrangements will dominate: cash, cards (credit/debit), Real-Time Payments (RTPs), stablecoins, or Account-to-Account (A2A) solutions. It is imperative that Visa anticipates these trends - as they have been doing - and positions itself to dominate a strategic bottleneck in the payment rails, ensuring relevance regardless of which specific arrangements win.

To date, Visa has executed an exceptional defense of its core business. Its dominance in the Consumer Payments (C2B) space provides a robust foundation for expanding Total Payment Volume (TPV) into adjacent rails such as B2B, P2P, B2C, and G2C.

Furthermore, Visa’s recent M&A activity - specifically the acquisitions of Pismo (core banking) and Tink (open banking) - serves as a critical hedge against architectural disruption as well as an additional growth driver. By owning the infrastructure that banks and fintechs use to operate and connect, Visa effectively creates an "infrastructure lock-in." This ensures that the company remains embedded in the financial stack, cross-selling Value-Added Services (VAS) like fraud analysis and risk scoring where it possesses significant data moats, regardless of the underlying payment rail.

However, I feel much less confident about Visa’s current ability to dominate at the gateway layer. This segment is the main field to several high-growth, highly efficient players - such as Stripe and Adyen - that are not only building strong, defensible businesses, but also deeply entrenching themselves through modern, microservice-based platforms in the payment industry. These architectures can increasingly serve as the foundation for those companies to build account-to-account (A2A) solutions, which may emerge as the most meaningful long-term competitive threat to Visa’s dominance in money movement. By enabling direct bank-to-bank or wallet-to-wallet connectivity, gateway players with new A2A rails have the potential to partially disintermediate Visa in certain use cases. As a result, I will closely monitor the evolution and adoption of Visa’s A2A offerings over the coming years, as well as the extent to which gateway providers succeed - or fail - in establishing themselves as alternative rails, or “payment pipelines,” within the broader digital payments ecosystem.

Conclusion:

Our current financial model, at Visa’s current valuation, points to an expected IRR in excess of 15% across multiple scenarios. This return is meaningfully above the long-term average of the S&P 500, despite Visa possessing moats that are materially stronger, wider, and more durable than those of the average index constituent. More importantly, I believe the upside risk - Visa becoming an even more critical piece of global financial infrastructure in B2B payments and core banking solutions while continuing to defend and extend its core network - is substantially more likely than the downside risk of meaningful moat erosion or failure to capture its current market opportunities. On this basis, we view Visa as a highly attractive risk-adjusted investment.