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Visa(V - Get Report) is no slouch when it comes to having an economic moat either. The global payment network has its logo printed on more than 60% of the world's payment cards. While that puts a big target on Visa's back, it's going to be hard for newcomers to take on the success that Visa has built among consumers and among merchants, both of whom see Visa acceptance as requisite to do business.
Payment card acceptance is a positive feedback loop. Consumers see Visa's network accepted everywhere they shop, so they're more likely to get a Visa-braded card, and merchants see more customers whip out a Visa than any other brand, so they're more willing to keep accepting Visa. That makes the firm's network extremely hard to replicate for new networks unless it's willing to take a huge haircut on the fees it charges. In my view, only
American Express (AXP) has been able to buck that trend, charging much higher rates for purchases, but its acceptance rate suffers as a result.
It's also important to remember that Visa's the payment network, not the credit card issuer. Visa's bank partners issue the actual cards, taking the credit risk away from Visa's balance sheet. Better still, the firm was at the forefront of the debit card trend, a move that spared it from getting hammered after 2007 when consumers started eschewing credit in favor of cash.
Visa is certainly no value play right now -- it's a pricey stock. That said, its momentum trajectory looks intact, so we're betting on shares in October.