43 - Investing in Credit Card Companies (V, MA, AXP, DFS)
Release Date: 09/22/2019
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info_outlineMental Models discussed in this podcast:
- Credit
- Rent-Seeking
- Networking Effects
Please review and rate the podcast
If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.
Support the Podcast on Patreon
This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.
You can find out more information by listening to episode 11 of this podcast.
Show Outline: Credit Card Company Investing
The full show notes for this episode are available at https://www.diyinvesting.org/Episode43
Four Major Credit Card Companies
- Visa (V) - payment processor
- Mastercard (MA) - payment processor
- American Express (AXP) - payment processor and bank (high-end focus)
- Discover Financial (DFS) - payment processor and bank
The Business Model of Credit Card Companies
- Take a cut of all transactions on the payment network
- Credit risk vs no credit risk
- Payment processor
- Extremely valuable service to the marketplace
Quality of the business:
- Extremely high for Visa and Mastercard
- Quite high for American Express and Discover as well
- Automatically inflation-adjusted sales growth
Potential Threats
- Overvaluation (particularly for Visa and Mastercard)
- New payment mechanisms such as digital currency like bitcoin
- A resurgence in cash (unlikely)
Summary
Investing in credit card companies is an extremely attractive proposition. They are some of the highest quality companies in the world with clear inflation-adjusted growth.