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43 - Investing in Credit Card Companies (V, MA, AXP, DFS)

The DIY Investing Podcast

Release Date: 09/22/2019

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More Episodes

Mental 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.

References