When extolling the virtues of long term, buy-and-hold investing, it's hard to think of a better example than Visa Inc. (NYSE:V). Since going public in March 2008, Visa's shares have returned well over 600%, crushing the market in the process. Even investors who only recently climbed aboard the stock have done remarkably well; shares are nearly up 30% year-to-date.
Of course, these heady returns are powered by consistently strong results. In its most recently reported quarter -- another masterpiece -- Visa saw both net revenue and net income increase by 26% and, after accounting for the acquisition of Visa Europe, processed transactions grew by 13%.
Many investors might view the manner in which Visa makes money as an incredibly boring process, even while admitting its overwhelming success. After all, consumers swipe credit cards and Visa gets a cut. Nothing to it, right? These same investors might be surprised, however, to learn that Visa regularly makes large investments in fintech, the practice of leveraging technology so that traditional financial services can be provided more cheaply and efficiently. In just the past few months, Visa has extended partnerships and made new agreements in this space.
Why does Visa feel the need to make these investments? While talking about one of these investments specifically, Visa CEO Al Kelly summed it up quite well on the company's third quarter conference cal (courtesy of S&P Global Market Intelligence) l when he said:
"Our planned investment is part of a global strategy to open up our ecosystem and support a broad range of new partners who are helping to redefine and enhance the purchase experience for consumers online and in mobile environments."
In other words, Visa is willing to make partnerships with anyone who it believes will enhance the payment experience for its card holders. Let's take a closer look at these recent deals and how they might impact Visa going forward.
Broadening its partnership with a Pal
Was it really just a little over a year ago when, after a frosty and testy co-existence as business frenemies, that Visa and PayPal Holdings Inc (NASDAQ:PYPL) first struck a deal covering their North American business? What a difference a year makes! In its latest conference call, CEO Kelly went out of his way to mention what a "really terrific partner" PayPal has been. This was after Kelly announced the partnership between the two companies would now include Europe too.
The European agreement goes a little bit deeper than the arrangements the two companies share elsewhere. For starters, in Europe, Visa Checkout will automatically be enabled at any merchant utilizing PayPal's Braintree payment processing. More impressively, however, is that, since PayPal holds a banking license in Europe, Visa will be issuing PayPal debit cards in Europe.
Kleaning up with Klarna
Visa also recently announced a strategic investment in and a new partnership with Klarna, a European online payments company that offers credit and flexible payments during the checkout process at online merchants. Or, as Kelly put it during the company's most recent conference call, "Klarna develops products that address changing consumer preferences, giving them the flexibility and seamless experience that they expect and hope for when shopping online."
While the name might be unfamiliar to American consumers, Klarna is far more familiar in Europe where 60 million consumers and 70,000 merchants have used its services. Financial terms of the investment were not disclosed.
Going to the market with Marqeta
Finally, in its most recent fintech deal, Visa announced a multiyear partnership and strategic investment in Marqeta, an open API (application programming interface) card issuer platform. Marqeta offers a number of payment solutions for issuers for on-demand delivery, alternative lending, the disbursement of earnings and rewards to card holders, advance cost controls, and on-demand virtual and tokenized cards. While, again, financial terms of the investment were not disclosed, the press release announcing the partnership said the initial focus would be virtual, physical, and tokenized payments in commercial markets.
That Visa is investing in opportunities in commercial markets should not be a surprise. Both Mastercard Inc. and Visa have both made B2B payment opportunities a business priority in recent months.
Just because Visa can be considered a "boring" business doesn't mean it doesn't have to make strategic investments and partnerships behind the scenes to stay on top of its game. The payments industry is changing rapidly, with fintech start-ups and larger financial institutions all wanting a bigger piece of the pie. That is why Visa shareholders should take heart that the company is making constant investments to ensure it gives its clients and card holders the best payment experience possible.
It has also been recently suggested-ahem-that Mastercard might be getting the better of Visa when it comes to innovative payment solutions that enhance either security or convenience for its customers. Whether that remains true or not, this is exactly what Visa should be doing in response: Investing in its future so that it remains the top dog in the payments arena. As long Visa continues to do this, shareholders can continue to expect out-sized returns in the future.