After another quarter of year-over-year revenue declines, it might be hard to get too excited about Visa (NYSE:V) (or its peer Mastercard, for that matter). Both are suffering from significantly lower transaction volume this year. Nevertheless, the trend toward cashless payments is making steady progress all around the world. And Visa, with its massive globe-spanning digital transaction business, is one of the best bets on an eventual economic recovery. While fintech outfits like PayPal and Square may look like the best starting places for a war-on-cash portfolio, don't ignore Visa's growing capabilities in financial technology and best-in-class profit margins.

A woman in thought holding a smartphone and credit card.

Image source: Getty Images.

Still pretty good, even in troubling times

A lot of travel plans -- of both the business and leisure variety -- have been eliminated this year, but Visa has replaced much of the activity with e-commerce transactions. Nevertheless, cross-border money movement between countries is hurting, and while digital cash is still in motion, not as much of it is flowing through Visa's system as prior to the pandemic. 

That was on display during the fourth quarter of Visa's fiscal 2020 (the three months ended Sept. 30, 2020). Payments volume returned to growth and rose 4% year over year, but cross-border transaction volume was down 29%. As a result, Q4 revenue fell 17% from the year prior to $5.1 billion, and net income fell 29% to $2.1 billion. 

Nevertheless, it was a good sign that payment volume is back on the rise, and management indicated it has been busy renewing deals with existing customers and inking deals with new ones. And in Visa's "value-added services," which include data security and other related tech, revenue grew 15% during Q4 and 18% during the whole of 2020. All told, while things haven't been great for Visa since the emergence of COVID-19, it hasn't been an unmitigated disaster, either. 


12 Months Ended Sept. 30, 2020

12 Months Ended Sept. 30, 2019



$21.8 billion

$23.0 billion


Net income

$10.9 billion

$12.1 billion


Adjusted earnings per share




Data source: Visa. 

The best way to ride the economic recovery higher

The way the world makes purchases is rapidly shifting, and though Visa's year has been less than stellar, it is nonetheless well-positioned to benefit moving forward. New digital payments platforms like PayPal's Venmo have been flying high, but Visa recently secured a deal to power the Venmo credit card, and it's powering other features on the app. Similar initiatives have been launched with other high-growth peers, like Southeast Asia's Shopee e-commerce platform owned by red-hot Sea Limited. Other digital wallets around the globe are turning to Visa as a trusted partner as well. 

And Visa continues to grow its exposure to these next-gen tech companies. It recently announced the acquisition of YellowPepper, a small software platform used as a universal adapter to connect and scale digital payment capabilities. It is worth noting that the previous purchase of fintech Plaid back in January is under review by the U.S. Department of Justice as a potential antitrust issue given Visa's already dominant operation, but regardless of the results of the investigation, Visa remains in pole position as a digital payment ecosystem leader. 

Taking its toll

How is Visa able to pull it all off? It's all about profit margins. Thanks to its virtual duopoly with peer Mastercard and the massive global scale of its tollbooth-like business (Visa earns a fee every time a transaction takes place on its network), even in a tough stretch like 2020, Visa generated a net profit margin of 50%. Talk about an enviable operating model. That gives Visa a constant stream of cash that it can continue to invest for further growth as the war on cash picks up in earnest amid the pandemic.

It also explains the steep premium Visa stock trades for -- 38 times trailing 12-month earnings per share as of Monday's close. Because digital payments remain a long-term secular growth trend, the high price tag will look a lot more reasonable once Visa inevitably returns to growth mode. 

Simply put, recovering economic activity and digital payments will keep this ship afloat for a long time. Visa is a solid place to start building a war-on-cash investment basket.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.