How Visa Makes Money: Data Processing, Service, and International Transactions

Visa Inc. (V) is one of the dominant digital payments brands globally, providing services in more than 200 countries and territories to individual consumers, merchants, financial institutions, and governments. The company provides a broad range of services, which include authorization, clearing, and settlement services for financial institutions and merchants. Additionally, while Visa does not issue credit or debit cards, the company does provide credit, debit, and prepaid card services to consumers and businesses. It’s Visa’s clients that issue the actual cards.

Visa makes its profits by selling services as a middleman between financial institutions and merchants. The company does not profit from the interest charged on Visa-branded card payments, which instead goes to the card-issuing financial institution. Visa so dominates the market that it has only a handful of big rivals, including Mastercard Inc. (MA), as well as digital payments companies like PayPal Holdings Inc. (PYPL).

Key Takeaways

Visa is a digital payments company providing transactions between financial institutions, consumers, merchants, and banks.
The company’s data processing operations generate the largest portion of revenue.
Visa’s strategy is to aggressively expand its presence in contactless payments, e-commerce, and other digital vehicles.
Visa recently terminated its merger agreement with Plaid Inc. following an antitrust lawsuit filed by the DOJ related to the proposed transaction.
Visa acquired fintech company YellowPepper in November 2020.

Visa’s Financials

Visa reported net income of $3.1 billion on $5.7 billion of net revenue in Q1 of its 2021 fiscal year (FY), which ended December 31, 2020. Net income declined 4.5% while net revenue fell 6.1% compared to the year-ago quarter. Visa noted that its revenue has begun to show some signs of recovery after being adversely impacted in 2020 by the COVID-19 pandemic. The pandemic continues to pose considerable uncertainty, however.

Net revenue from Visa’s U.S. business, which comprises about 47% of total net revenue, fell 1.8% in Q1 FY 2021 compared to the year-ago quarter. Net revenue from international sources, which accounts for the remaining 53% of total net revenue, fell 9.5%. Visa indicated that the revenue declines were driven by year-over-year (YOY) changes in cross-border volume, which was impacted by COVID-19, and higher client incentives. The decrease in net revenues, however, was partly offset by growth in nominal payments volume and processed transactions.

Visa’s Business Segments

Visa reports as a single segment, which is Payment Services. But it routinely divides its revenue into four subsegments, which are the major generators of revenue for the company. These segments are: Service Revenue, Data Processing Revenue, International Transaction Revenue, and Other Revenue. Visa describes these subsegments as “components” of net revenue, but they are reported gross of client incentives. The sum of the revenue totals for each segment equals gross revenue of about $7.5 billion in Q1 FY 2021. Visa’s net revenue of $5.7 billion for the quarter is equal to that gross revenue figure minus client incentives.

Service Revenue

Visa’s service subsegment consists of revenue from services provided to support client usage of Visa’s payment services. This is separate from the authorization, clearing, and settlement related to the company’s payment services, which is included elsewhere. In Q1 FY 2021, Visa’s service revenue was $2.7 billion, or about 35% of the company’s total gross revenue. This is up 4.8% compared to the year-ago quarter.

Data Processing Revenue

Visa’s data processing revenue includes all revenue generated as a result of the company’s clearing, settlement, authorization, value added, network access, and other similar services. In Q1 FY 2021, data processing revenue accounted for the largest portion of the company’s gross revenue: $3.0 billion or about 40%. This figure is up 5.9% compared to Q1 FY 2020.

International Transaction Revenue

Visa is heavily involved in cross-border transaction processing and currency conversion, and these activities generate revenue in the subsegment of international transaction revenue. In Q1 FY 2021, international transaction revenue was $1.5 billion, or about 19% of gross revenue. Revenue for this component was down 28.1% compared to the same quarter a year ago.

Other Revenue

Visa also earns revenue from license fees, value-added services, account holder services, and more. These sources are grouped together as Other. At $384 million or 5% of Visa’s Q1 FY 2021 gross revenue, the Other component accounts for the smallest portion of revenue. Other revenue rose 5.2% compared to the year-ago quarter.

Visa’s Recent Developments

On November 20, 2020, Visa announced the completion of its acquisition of YellowPepper, a fintech company that supports leading financial institutions and startups in Latin America and the Caribbean. It marks Visa’s first acquisition of this kind in the region and will help to accelerate the company’s “network of networks” strategy. Visa said it will now be able to offer a single point of access for initiating different types of transactions and enabling the secure transfer of money.

On November 5, 2020, the U.S. Department of Justice (DOJ) filed an antitrust lawsuit that aims to block Visa’s planned acquisition of Plaid Inc., another fintech company. The deal is valued at $5.3 billion and the DOJ alleges that the deal would eliminate a significant competitive threat to Visa in the online debit market. Visa issued a statement contesting the decision by the DOJ, indicating that it plans to vigorously defend the transaction. On Jan. 12, 2021, Visa issued a press release announcing that it and Plaid had terminated their merger agreement. Visa also agreed with the DOJ to dismiss the litigation related to the proposed transaction.

How Visa Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Visa and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Visa releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Visa discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Visa breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.