Over the past decade and more, Visa (V 0.21%) has been one of the most reliable, dependable growth stocks on the market. The world's largest payment processor has churned out double-digit percentage annualized earnings growth, and its stock price rose at an annualized rate of 28.6% from 2011 through 2020.
But 2021 was not a good year for Visa. Its stock price ended the year essentially flat -- down less than 1% -- and it needed a strong December just to get that close to breaking even. Revenue growth slowed in the first half of the year as the economy lurched along through the pandemic, and while it picked up in the third quarter, concerns about inflation, supply chain issues, and new COVID-19 variants, as well as an overall sell-off among growth stocks, put a damper on the stock.
But will the malaise carry over into 2022?
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Visa is in a dispute with Amazon
A lot has been written about Visa and its duopoly, its business model, its high margins, and its incredible long-term growth. It doesn't lend money, so it has no credit risk, and its business surges during good economic periods when people are spending more money. But even in the economic troughs, Visa still does fairly well because of its duopoly, along with Mastercard, and its sound financials.
But as the world continues to move more transactions from cash to digital payments, emerging trends like decentralized finance (DeFi) and "buy now, pay later" (BNPL) are altering the landscape, creating more competition and forcing both Visa and Mastercard to adapt. And with the rise in innovation and competition comes greater regulatory scrutiny and oversight, which could significantly impact the industry.
With that as a general overview, there are a few things that Visa shareholders should be on the lookout for in 2022. The most immediate of these involves the company's conflict with Amazon. On Jan. 19, the e-commerce giant is due to stop accepting Visa payments in the U.K. due to its high transaction fees in that market. If the situation is not resolved, Amazon could switch its Visa-branded credit cards in the U.K. to Mastercard. Note, this does not impact U.S.-based Visa payments.
This all could well be cleared up before the payment stoppage occurs. The threat might be a negotiating tactic by Amazon, rather like when you get that message scrolling across the bottom of your TV screen that says you'll no longer get a specific channel after a certain date because of a dispute between the cable company and the channel's owner over carriage fees. Usually, the two sides work it out.
Obviously, this bears watching, even though analysts say it won't have a big impact on Visa's revenue even if it isn't settled. It likely will be, and perhaps even in favor of the payment processor. But if it's not, or if the resulting agreement is not favorable for Visa, it could be a short-term headwind for the stock.
The larger potential concern, considering the rise in alternative forms of digital payment, is that Visa could lose some of its leverage with large retailers, and wind up compelled to further adjust its fee structure.
Visa is facing more intense oversight
Another issue that has dogged Visa in the past year or so is increasing regulatory scrutiny. In late 2020, the Justice Department filed a lawsuit to block Visa's acquisition of Plaid, a fintech that allows people to connect their bank accounts to third-party apps. The Justice Department cited antitrust concerns, noting that Plaid is developing a payments platform that could challenge Visa's monopoly in the online debit market. The merger would have eliminated that competitive threat. In early 2021, Visa and Plaid called off the deal.
In October, The Wall Street Journal first reported that the Justice Department was investigating Visa's relationship with major payment providers Block, PayPal, and Stripe. According to its sources, investigators are looking into whether Visa provided financial incentives to these firms to use its network, and if those incentives kept them from using other networks. And back in March, various news outlets had reported that the Justice Department had been investigating Visa for potential anti-competitive practices in the debit card market.
The Justice Department has not provided any updates on these matters, but perhaps Visa will address them during its fiscal 2022 first-quarter earnings call on Jan. 27. Nothing may come of any of these investigations, but investors should be aware of them.
It's not just Visa that is facing increased scrutiny. Regulators are examining other aspects of the payment industry, too. For example, the Consumer Financial Protection Bureau is conducting its own probe of the BNPL industry.
Long term, Visa remains a great investment. Even with increasing competition amid a shifting landscape, it has the massive network, great brand, and financial strength to adapt, whether that involves forging connections to the cryptocurrency space or rolling out its own version of BNPL. But investors should be aware of these developments as they could have short-term impacts and perhaps longer-term effects if they lead to significant changes.
