Visa (V 0.95%) is a clear leader in the card payments industry. In the fiscal 2023 second quarter (ended March 31), it processed a jaw-dropping $3 trillion in total payment volume (TPV), putting it well ahead of smaller rival Mastercard. That TPV figure has grown over the years, which has helped propel the business. 

A $1,000 investment in Visa in 2013 would be worth $5,049 today, good for a superb return of 405% (as of June 5). That gain crushes what investors would have been able to achieve investing in the S&P 500 or the Nasdaq Composite Index. 

Let's take a look at what has led to Visa's outstanding performance, as well as what the future might hold. 

The popularity of using credit cards 

Unsurprisingly, the world's shift toward digital transactions has been a fantastic secular tailwind for Visa. According to the Federal Reserve Bank of San Francisco, cash was used in 18% of transactions in 2022, down from 31% in 2016. During that time, credit card usage went from 18% to 31%. 

Consumers just love using their credit cards, many of which come with valuable rewards programs. And this is a boon for Visa, because the more branded cards it has in circulation -- now at a whopping 4.2 billion -- the greater the revenue potential. That's because Visa collects a small assessment fee from each transaction that it processes on its network. So as more users spend more on their cards over time, Visa gains. 

This is in stark contrast to the banking partners that issue Visa credit cards. They are the ones actually taking on the credit risk of borrowers. The result is that Visa isn't much of a cyclical business -- unlike traditional banks, which are heavily dependent on the state of the economy, changes in interest rates, and consumer confidence. 

This favorable backdrop has benefited Visa tremendously. Between fiscal 2012 and fiscal 2022 (ended Sept. 30), revenue increased at a compound annual growth rate of 10.9%, with diluted earnings per share (EPS) up at a clip of 24.4%. In the most recent quarter, Visa's sales and diluted EPS jumped 11% and 20%, respectively, a positive sign given the uncertain macroeconomic environment. Investors would also struggle to find many companies with a better operating margin than Visa's 67%, the figure in the latest quarter. 

Positioned to keep winning 

There are important reasons to believe that Visa's stellar past performance will continue. For starters, this business has one of the strongest economic moats around. With so many merchants and cardholders using its platform, Visa benefits from powerful network effects. In other words, using or accepting Visa becomes more valuable as more parties join the network. And since Visa is ubiquitous, merchants and consumers have no choice but to use its service. 

Moreover, the company also has a competitive advantage in the form of high switching costs. Once a merchant has signed on to use Visa, or an individual has Visa cards in their wallet, they're unlikely to stop using the network. That's because there aren't very many competitors to begin with. Therefore, these stakeholders really have no choice but to remain locked in to Visa's vast network. This puts the threat of disruption very unlikely. 

Visa's growth should continue in the decade ahead because its business is essentially a tax on economic activity. The company's sales are set to rise over time as gross domestic product increases and consumers spend more. Even more impressive, Visa isn't really scared of the threat of elevated inflation. Higher prices across the economy largely translate to more payment volume on its network -- provided the economy doesn't tumble into a crushing recession. 

The current valuation, at a price-to-earnings ratio of a little more than 30, might be too rich for some investors. But it is below Visa's trailing five-year average. Whatever your perspective is on this, it's hard to deny that the company is positioned well as we look ahead.