It may not be the market's best-performing stock over the course of the past 10 years. But there's no denying Visa (V +0.67%) shares have soundly rewarded patient shareholders. A $10,000 investment in Visa made in 2013 would be worth nearly $54,000 today. Factoring in reinvested dividends would bump that total up to $58,020, which nearly doubles the performance of the S&P 500 over that time.
The thing is, while most stocks struggle to maintain above-average gains for years and years on end, this one just might do so. The reasons Visa shares have done so well during the past decade are still largely intact: the company's superior offerings and a growing preference for card-based payments rather than cash.
Capitalizing on an inevitable shift
Contrary to a common belief, Visa isn't the underlying lender to customers using its plastic to make purchases. It's strictly a middleman, allowing banks and other lenders to issue credit cards while at the same time allowing merchants to accept card-based payments. It handles nearly 270 billion transactions per year, facilitating more than $14 trillion worth of business between more than 100 million merchants and the holders of more than 4 billion Visa cards. That makes it the world's largest credit payment network.
The stock's impressive growth of course reflects the growing use of debit and credit cards themselves.
Ten years ago a full 40% of consumer purchases made in the U.S. were made with cash, according to data from the San Francisco branch of the Federal Reserve bank. Debit cards only accounted for 25% of transactions then, while credit cards were only used 17% of the time. As of last year, however, only 17% of purchases were completed using cash. Credit cards were pulled out 31% of the time something was bought within the U.S., while consumers opted to use a debit card a similarly healthy 29% of the time in 2022.
The same basic trends are evident overseas.
More business-building innovation is on the way
What the Federal Reserve Bank of San Francisco's numbers don't tell us is how much sheer innovation from Visa helped drive this shift toward a cashless society.
It's difficult for regular card users to remember, but there was a time not all that long ago when credit card purchases weren't approved in real-time. Perks and rewards for charging goods and services are an even newer concept. For that matter, security chips being embedded within cards themselves are a young idea as well, only becoming an effective requirement in 2015. Many of these evolutions were developed and introduced by credit card companies like Visa itself, as a means of encouraging consumers to use their cards more often.
Of course, the cards' underlying lenders and card-accepting merchants offer a small fee to the payment network for making the purchase possible in the first place.
NYSE: V
Key Data Points
The thing is, Visa is still innovating. Indeed, its most compelling innovations may have yet to come.
See, the company operates five different innovation centers all over the world as a means of independently finding ways to serve merchants better and meet consumers' ever-changing needs. Its San Francisco-based innovation center, for instance, unveiled Visa+ in April of this year. Visa+ allows individuals to make seamless P2P (peer-to-peer) payments to and from others' Venmo and PayPal accounts, crossing an interoperability line that many thought would never be crossed.
Its innovation efforts in Africa are dramatically different. The company recently unveiled an incubator of sorts for the continent's budding fintech companies. Visa's ultimate goal is to "enable Africa's expanding start-up community through expertise, connections, technology, and investment funding." The company hopes to help as many as 40 start-ups every year.
Of course, the program will also help establish new customers in the fast-growing emerging market.
Visa is working on crypto payment solutions as well.
Visa stock is poised for a repeat performance
Can Visa drive another fivefold gain in just 10 years? Maybe. Nobody really knows.
What is clear is that there's plenty of opportunity to do so if Visa (and no pun intended here) plays its cards right.
Again, a shocking number of purchases are still being made with cash, not to mention relatively inconvenient ACH transactions. The San Francisco Federal Reserve notes that in addition to lingering cash usage, 13% of spending among U.S. residents still utilizes these direct bank debits that require standing permissions from account holders. In the meantime, the world has only scratched the surface of forging the interoperability of different payment companies' platforms as well as the integration of cryptocurrency-based payments -- an alternative form of payment that could explode in just a few short years.
Bottom line? The card payment business may be more than mature. But it's not even close to peaking. You can feel good about holding on to Visa shares for another 10 years, or stepping into a long-term trade now if you don't own it yet.
