Global network cards industry outlook
According to Research and Markets, the worldwide credit card payment market is anticipated to grow and reach a value of $762.16 billion by 2027, with a CAGR of 7.80% from 2022 to 2027. Additionally, as per the Nelson Report, credit card purchase volume is projected to hit $6.33 trillion by 2026 at a 6.76% CAGR from the 2021 to 2026 period with an outstanding balance of $1.25 trillion.
On a global scale, Visa Inc. (V, Financial) is the current market leader in network cards, with a 39% market share based on purchase transactions. Visa dominates 53% of credit card purchase volume and 72% of debit card purchase volume in the U.S. Visa holds a market share of 33% in Canada, 57% in Europe and 57% in Latin America among card networks and brands.
Source: Nelson Report
In the Asia-Pacific region, UnionPay dominates the market with 75% of purchase transactions, and Visa is standing behind with a 13% market share. There could be an expansion opportunity for Visa in emerging markets, especially targeting small businesses.
The Card Payment Network is expected to generate a purchase volume of $14.08 trillion in 2026, with Visa dominating the market. In addition, a potential market recovery in the second half of 2023 could boost the growth pace of Visa's key business drivers. Despite macroeconomic challenges, Visa's key business drivers, including Payments Volume and Processed Transactions, demonstrated remarkable growth and performance prospects, with 7% and 10% year-over-year increases in constant dollars during the first quarter of 2023, indicating its remarkable pas growth and positive outlook for the future.
Source: Nelson Report
Key trends specific to Visa
By focusing on several key trends, Visa seems well-positioned to maintain its leadership position in the global payments technology market. These include the continued adoption of new technologies like biometric authentication and tokenization, an increased emphasis on security and fraud prevention and investments in open banking and API development. In addition, Visa has been at the forefront of promoting and adopting contactless payments worldwide, making it a pioneer in this technology. As the popularity of contactless payments continues to grow, Visa can leverage its status as a leading payment technology company to capture a significant market share.
Visa has been investing in mobile payment technology, such as Visa Checkout and Visa Direct, which enable consumers to make payments through their mobile devices. With the growth of mobile payments, Visa can leverage its technology and partnerships to expand its market share. Moreover, Visa has a strong presence in cross-border payments and can use its network to expand its reach in this area. Investing in technologies like Visa B2B Connect and Visa Direct, the company can simplify cross-border payments for businesses and consumers, further strengthening its position in this market.
The financial services conglomerate has been exploring opportunities in the growing digital currency market and has launched a pilot program to enable digital currency transactions. As digital currencies gain popularity, Visa can leverage its technology and partnerships with digital currency providers to expand its offerings. Additionally, Visa is expanding blockchain technology to increase efficiency, developing new payment platforms to improve the customer experience and collaborating with fintech companies to create new payment solutions.
Overall, Visa's technology and payment network are in a solid position to capitalize on these emerging opportunities in the global digital and card payment technology spaces.
Crypto's potential
Visa has shown a growing interest in cryptocurrency, recognizing the increasing demand for and adoption of digital currencies globally. Visa's focus on crypto technology can be seen through several initiatives, such as partnering with digital currency exchanges and wallets, offering crypto-related services to customers and launching a pilot program to settle transactions in stablecoins.
Visa's partnership with crypto exchanges and wallets has made it easier for customers to convert and spend their digital currencies at millions of merchants worldwide. For example, through a partnership with Crypto.com, the company has launched a debit card that allows users to spend their cryptocurrencies at any merchant that accepts Visa. The company has also been working on providing crypto-related services to its customers, such as allowing them to buy, sell and hold cryptocurrencies directly within their Visa accounts. This move by Visa enables users to access and manage their crypto assets easily. In addition, it can expand the customer base rapidly by integrating the crypto community.
Finally, Visa launched a pilot program to settle transactions in stablecoins, which can reduce transaction costs and increase the speed and efficiency of cross-border payments. In 2023, I believe Visa's focus on crypto technology could push it ahead of the curve as a competitive advantage in the evolving global payments industry.
Economic risks
Visa is exposed to massive currency exchange rate risk, and a stronger dollar negatively impacts its financial performance and market valuations. Thus, the company experiences a considerable exchange rate risk in its daily settlement activities due to differences in the timing of rate setting and market trades for balancing currency positions.
More specifically, a stronger dollar in 2023 could reduce the value of revenues generated from foreign currency-denominated transactions, increase the cost of payments made in foreign currencies, reduce the revenue and margins and increase expenses. In addition, a stronger dollar can make Visa's products more expensive for foreign customers, reducing demand and market share. It could lead to a decline in its market valuations, as investors may view these factors as negative indicators for future growth and profitability.
As of Sept. 30, 2022, the aggregate notional amount of its foreign currency forward contracts outstanding was $3.4 billion, which can lead to a considerable change in its financial position in volatile forex conditions. A hypothetical 10% weakening in the functional currencies is estimated to create an additional fair value loss of around $220 million on its outstanding foreign currency forward contracts, which would largely offset corresponding gains on foreign currency-denominated revenues and payments.
Visa is also subject to exchange rate risk related to translation, as the functional currency of Visa Europe is the Euro. As a result, its Euro-denominated senior notes are subject to considerable exchange rate exposure. A hypothetical 10% shift in the exchange rate between the Euro and the U.S. dollar as of September 30, 2022, would produce a foreign currency translation adjustment of $1.8 billion.
Additionally, elevated interest rates will increase Visa's cost of debt in 2023, and for its customers, it can reduce spending and potentially harm its revenue. However, Visa earns a significant portion of its revenue from transaction fees, which are not directly attached to interest rates, and consumer demands appear resilient for now.
Takeaway
To conclude, Visa's outlook remains positive in 2023 considering its market position, massive addressable market, expanding growth in key business drivers, brand recognition and constant innovation to improve its payment solutions.
