Visa: The Original Protocol Business - [Business Breakdowns, EP. 07]

Today we will be diving into Visa. Starting in 1958 as a BankAmericard credit card program in Fresno, California, it then became a non-profit consortium of banks that operated the Visa network. Over the first few decades of its existence, Visa became the protocol layer that allowed essentially all the banks in the world to communicate with one another.

 

In 2007, Visa completed a corporate restructuring that took it public and now boasts a larger market cap than all of the banks that previously owned it as part of the consortium.

 

In this Breakdown, we set the stage with Visa's role in a card transaction, describe the lifeblood of Visa’s revenue, interchange, and then dive into its unique history as a consortium turned multi-hundred billion-dollar public business. We then explore Visa’s unique moat and network effect, how Visa makes money today, and look at the potential threats from other businesses and macroeconomic forces. Visa is a fascinating business, and I recommend you check out our website at JoinColossus.com, where we provide additional articles, books, and podcasts for those who want to keep unpacking the Visa story.

 

To help me break down Visa, I'm joined by Alex Rampell, a general partner at Andreessen Horowitz, where he focuses on investing in financial services. Prior to joining Andreessen, Alex co-founded multiple companies, including Affirm and TrialPay, which was acquired by Visa in 2015.  

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

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Show Notes

[00:03:20] - [First question] - Key players and functionality of a credit transaction

[00:05:50] - How $3 would be split up amongst the network after a $100 purchase is made

[00:10:55] - How Visa came to be a central player and why banks don’t talk to each other

[00:16:26] - Other businesses that have dominating protocol effects in fragmented sectors

[00:19:47] - What the internals of a business like Visa looks like and 

[00:24:48] - Visa’s topline revenue is almost entirely exclusive to transaction fees

[00:26:11] - Thinking of Visa as a tax and simultaneous enabler of commerce writ large

[00:30:48] - Why concentration poses a risk to their business model

[00:34:56] - How international standards may play a role in Visa’s future

[00:41:52] - Would it be worth it for merchants to build something competitive 

[00:44:33] - Thoughts on new value transfer tech companies and their relevance to Visa

[00:48:59] - Plaid’s role in the payment ecosystem and as a potential competitor

[00:50:40] - Parallels between the crypto space, their protocols, and open-source payments 

[00:52:54] - Business lessons for entrepreneurs when studying Visa’s history

[00:54:44] - Lessons learned that can be applied to investing when studying Visa’s history

[00:55:37] - Books to learn more; A Piece of the Action, One for Many