The Trillion Dollar question; Visa Would Join the $2 Trillion Club

Big Tech’s elite: The $2 trillion market cap giants leading global innovation—can Visa be the next to join?

In a recent report, Mitrade, a finance focused online platform, made quite a prediction about Visa’s (the finance Company) financial growth. The report predicted about visa joining the $2 trillion club along with the bigwigs like Apple and Nvidia. Given the company’s current valuation being at $680 billion only, the claim sounds too tall, demanding an annual growth of 11.3%. Now as much as the growth rate feels a little too ambitious but is achievable given Visa’s previous financial records.

The Network Effect

One thing that anyone who understands economics can vouch for, is Visa’s unparalleled competitive advantage. A company with decades of goodwill and public trust, having 5 billion cards in circulation, and making 316 billion annual transactions definitely creates what economists like to call the “two-sided network effect”. Which means the mediatory cash-less payment platform is equally cherished by the consumers and the business owners.

Enjoying this privileged and self-repeating cycle, where consumers carry their cards because it is accepted by the merchants; and merchants accept it because it is carried by the consumers. Not many of the market’s products possess this kind of dual network effect. If any company could join this $2 trillion market cap, then it has to be someone playing both sides of the field, as Visa has been doing since long.

Story of the Margins

The report went on to explain the maths behind the claim. It says that generating 80% gross margins and 50% net margins isn’t a child’s play. This speaks volumes about the magnitude of the company’s business. Through these numbers, Visa positions itself at a considerable business model advantage. Also, the fact is hard to miss that with every added swipe visa would not face any incremental transaction cost. Rather, each of its card swipe strengthens the visa’s network while barely touching the bottom line.

The Digital Transformation Hype

While the Mitrade report recognizes the cash-to-digital transition as a tailwind, it seems to understate the mounting global opportunity. The modern market is exponentially shifting towards digital leapfrogging the traditional banking infrastructure and the penetration of E-commerce is yet to see a considerable rise in many developing regions.