Financial Services
Five Reasons to Embrace Visa IPO
03/18/08 - 02:14 PM EDT
Debit cards also have helped Visa expand into servicing merchants who rarely relied on credit cards. Most consumers are averse to paying for certain things on credit: movie tickets, parking lots, fast food and so on. But debit cards account for 85% of electronic transactions at fast-food restaurants, and today, McDonald'sMCD is Visa's second-largest merchant. 4. Visa has a few things working in its favor that could help push up profit margins in coming years. First, there are economies of scale. Since 2003, the number of transactions processed by Visa has increased by 61%. But the incremental cost of processing those transactions has risen by only 12%. So, the user cost per transaction has actually decreased by 55%, according to figures released in Visa's IPO roadshow. Second, Visa has plans to cut operating expenses over the next two years. Management says it can eliminate $300 million through cutting personnel, professional fees and marketing and advertising costs. Finally, the company believes that it can cut its current tax rate of 41% to 35% or 36%, which it says is similar to the rate of rival MasterCard
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