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VISA SWOT & PESTLE Analysis

ID : 52377153 | Apr 2018

COMPANY PROFILE - VISA Inc.

Business Sector : Banking and Financial Services

Operating Geography : United States, North America

About VISA Inc. :

Visa incorporated on May 25, 2017, is an American multi-national financial services corporation. An established leader in payment and verification technologies, the company connects consumers, merchants, financial institutions, businesses and government entities to electronic payments. In 1958, Bank of America (BofA) had launched its BankAmericard credit card program. In 1976, BankAmeriCard became Visa, the global payments technology company. One of the most recognized brands in the world; it has presence across all continents except in Antarctica. Visa's footprint extends to 3.1 billion account holders partnering with 44 million merchants, 16,600 financial institution clients, operating in 160 currencies across 200 countries and territories. Headquartered in Foster City, California, United States, it enables global commerce through the transfer of value and information among the participants. Its core products are credit, debit and gift cards, prepaid and commercial.

Visa's USP or unique selling proposition lies in its strong global presence being the world's largest retail electronic payments network. Its vision statement reads “To be the best way to pay and be paid for everyone, everywhere. We know that every Visa transaction is a promise.” Visa's mission statement reads "To connect the world through the most innovative, reliable and secure digital payment network that enables individuals, businesses and economies to thrive."

VISA Inc. Revenue : $4.86billion- FY fiscal first quarter 2018

Competitive Analysis of VISA Inc.

The SWOT analysis of VISA Inc. is presented below:
Strengths
Weaknesses
1. Leading operator for digital transactions and a segment leader
2. Largest market share in US
3. Home to best talent in the industry
4. Engaging in strategic partnerships
5. Strong cash flow stream
6. Low credit risk due to open loop network
1. Surging operating expenditure
2. Heavy dependency on contractual relationship with the largest clients.
3. Merchants continuing to push lower acceptance costs and challenge industry practices.
Opportunities
Threats
1. World shifting from cash to digital transactions
2. Expansion of cross-border volume with integration of Visa Europe
3. Undertake varied initiatives to expand access in different geographies
4. Connected devices gaining popularity by the day
5. Eye expansion in China
1. Security breaches and cyber-attacks
2. Fraudulent activities during card usage
3. Exponential rise of government backed digital payment platforms

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Detailed SWOT Analysis of VISA Inc.

 

Strength

1. Leading operator for digital transactions and a segment leader: In the U.S., research has shown that the majority of debit and credit card holders prefer Visa over other brands. Visa Inc. has been persistent in building preference for their brand through digital marketing, best in class customer understandings with their partners and sponsorships.In the past few decades, Visa has woven a network that includes 44 million merchants and 2.2 billion cardholders.There are in total $30.5 billion transactions including cards in circulation and number of transactions, which has grown up 12% from last year.It’s revenue for the quarter 4 (Q4) ended on Dec’17 rose 9% from the year before to $4.86 billion from $4.85 billion.Visa is the mediator between 14,100 financial institutions, 2.2 billion visa cards and tens of millions of merchants, with its network, VisaNet capable of processing 56,000 transactions per second. In U.S., Visa’s research studies have demonstrated that consumers are more likely to return for a repeat purchase to a merchant that accepts Visa. Thus, it shows that Visa is leader among all its competitors. It has built a brand of trust, as the Company has done quite well to safeguard its customers against any security breaches or data compromises.

2. Largest market share: In Quarter 2(Q2) 2017, Visa’s credit card industry in the U.S had a market share of 52.8%, highest among all the competitors. This dominant market share gives it a great competitive advantage. Its credit card purchases rose 10% from $769 billion in Q2 2016 and Q1 2017 to $844 billion in Q2 2017.Visa holds a 58% market share in digital transactions globally according to a Nilson study. As the payment industry is seasonal, with purchase volumes escalating in the Quarter 4(Q4) 2016 i.e. $430 billion due to the impact of holiday season shopping, and later fell down in the Quarter1 (Q1) 2017 i.e. $404 billion and then increases steadily over the second and third quarters. With continuing surge in cashless transactions, towards the closing of Q1 2018, Visa circulates over 3.2 billion cards and has an enormous network of over 44 million participating merchants worldwide. This formidable network lends it a great competitive advantage; Merchants that do not hook to the VISA network, risk losing their business to 3.2 billion cardholders, whereas consumers like to pocket a visa card because they would be able to shop at 44 million locations. Visa processes more credit cards than each of its 3 competitors (MasterCard, American Express, Discover).Visa's payments volume hit $2 trillion in payments volume in Q4 2017 and has a 10% yoy growth on total transactions.

3. Home to best talent in the industry: According to annual report 2017, it had 15000+ employees. Its employees plays a vital role to Visa’s success, the management team has a significant industry experience. The company unveiled a new leadership initiative during the fiscal year 2016-17, to further empower its market leaders around the world. Visa has also expanded Visa University to help the Company recognize, attract and educate exceptional talent. It has also established a remote learning capability to facilitate in-house training on a varied range of payment-related subjects.

4. Engaging in strategic partnerships: In the U.S., Visa has achieved major milestones with the conversions of the Costco and USAA portfolios. It also actively partnered with Fintech companies with exciting capabilities believing that it’ll add value to their payment system. In June 2016, it partnered with Klarna, which offers online acceptance and consumer lending in Europe. In July 2016, they signed an agreement with PayPal in U.S. to make it easier for Visa cardholders to choose Visa as a preferred payment method within PayPal experiences. Later in July 2017, it had extended its existing partnership agreement with PayPal to Asia Pacific and Europe, where they’ll work together to accelerate the adoption of secure and convenient online, in-app and in-store payments.

5. Strong cash flow stream: The cash stream for Visa is quite healthy. In the first quarter of FY 2018, the company generated about $2.8 billion of operating cash flow. This demonstrates a strong growth rate of approximately 10.1% per year basis. Its quarterly capital expenditure of $141 million is quite low (it oscillated between $140 million to $195 million per quarter for FY 2017). Hence, the Company was able to generate about $2.6 billion of free cash flow in the past quarter. Its free cash flow component constitutes around 53.9% of its revenue in Q1 2018 and 46.3% of its revenue in 2018.

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Weakness

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Opportunity

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Threat

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The PESTLE/PESTEL analysis of VISA Inc. is presented below:
Political
Economical
1. Government intervention and imposed restrictions on payment system.
2. United Kingdom’s withdrawal from the European Union.
1. Increase in use of digital payments
Social
Technological
1. Launch of Visa Foundation
2. Grant to Women’s World Banking Support.
1. Transformation of VisaNet into a flexible payments platform
2. Announcement of Biometric based Credit cards
Legal
Environmental
1. Antitrust and Competition Law Compliance
2. Anti-Money Laundering, Anti-Terrorist Financing, and Sanctions
1. Minimizing the environmental footprint of our payments ecosystem
2. Investment on LEED-based building design
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Detailed PESTLE Analysis of VISA Inc.

 

Political

1. Government intervention and imposed restrictions on payment system: Government shields domestic payment card networks, brands from international competition by forcing market access barriers and domestic regulations. These policies and regulations affect the competition terms in the marketplace and underestimate the effectiveness of international payments networks. In the near future, governments may impose regulations that will favour domestic providers and may make mandatory that domestic payments processing be used entirely in the country, which can tremendously hurt Visa’s business in that countries. Co-badging is the inclusion of two or more payment brands (e.g. Visa and MasterCard) or 2 or more payment applications(e.g. Visa credit and Visa debit) of the same brand on the same payment instrument ,Co-residency is the inclusion of one of two or more programs stored in one memory simultaneously. Co-badging and Co-residency regulations can cause additional challenges for Visa to compete with national schemes for routing and issuance. For Ex., in China, certain banks had released dual- branded cards due to which domestic transactions are managed by domestic payment card network i.e. UnionPay and transactions outside China are held by other international payment networks.

2. United Kingdom’s withdrawal from the European Union: In June 2016, voters in United Kingdom (UK) supported the withdrawal of the UK from the European Union (BREXIT). In March 2017, the UK government began the exit process under Article 50 of the Treaty of the European Union, initiating a time period of 2 years for the UK and other EU member states to negotiate the terms and conditions of withdrawal. UK’s departure from the European Union could cause political and economic indecisions in the UK and the rest of Europe. This can harm the business of Visa and its financial results. Brexit could lead to legal indecision and potentially deviating national laws and regulations in the UK and European Union. With Visa's good slice of operations in the UK and Europe, it might need to apply for regulatory authorization and permission in individual EU member states, which may impact its current ability to operate seamlessly in European Union and UK effortlessly. Any effects of Brexit may harm Visa’s business.

Economic

1. Increase in use of digital payments: Now as the world is going digital, the demand for the digital payments platform is increasing with the replacement of cash to digital. The replacement has benefitted merchants by reducing theft and increasing revenue-producing services. In 2017, Visa strengthened its efforts to expand access around the world. Visa merchants’ acceptance in India has doubled to 2.5 million merchant areas, providing Indian consumers more opportunities to use digital platforms other than cash. Thus, there is significant increase in usage of digital platforms, mainly Visa in the coming years. In August 2016, Visa filed an application with the People’s Bank of China to participate in the Chinese domestic market as a bankcard clearing institution in a hope that this is positive first step towards full participation in the world’s 2nd largest economy.

Social

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Technological

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Legal

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Environmental

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Check out analysis of other relevant companies

References used in VISA Inc. Analysis Report

1. visa annual report 2016: https://s1.q4cdn.com/050606653/files/doc_financials/annual/Visa-2016-Annual-Report.pdf

2. https://usa.visa.com/visa-everywhere/global-impact/visa-foundation.html

3. https://www.businesswire.com/news/home/20171023006560/en/Visa-Launches-Foundation-Inaugural-Grant-Women’s-World

4. https://usa.visa.com/visa-everywhere/security/biometric-payment-card.html

5. https://www.businesswire.com/news/home/20180114005063/en/Press-Here%21-Visa-Begins-Pilots-New-Biometric

6. https://usa.visa.com/dam/VCOM/download/corporate-responsibility/visa-2016-corporate-responsibility-report.pdf

7. http://www.sustainablebrands.com/press/visa_named_top_10110_us_green_company

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VISA Inc. SWOT and PESTLE analysis has been conducted by Samridhi Khanuja and reviewed by senior analysts from Barakaat Consulting.

Copyright of VISA Inc. SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.