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From the conclusion: >> These are the hallmarks of one of the best businesses on the planet. The "best business on the planet" is effectively a tax on economy

by wffurr 7y ago

From the conclusion: >> These are the hallmarks of one of the best businesses on the planet. The "best business on the planet" is effectively a tax on economy growth? They don't even reinvest their profits - they return them to shareholders. So the value of the "best business on the planet" is that it takes a percentage of every transaction and funnels it into the personal wealth of Visa shareholders? That kind of platform business should really be run as a non-profit, and instead of paying dividends, should reduce processing fees to where it just covers operating costs and capex. Instead it sounds like it's just a driver of inequality simply because they have a captive market and no real competition. I suppose that's the "best business" under a very specific definition of best. But in terms of making the world a better place, I don't think so.

rayiner 7y ago
Building a worldwide payment network creates more transactions and more value than whatever profits Visa makes from it. If a non-profit version didn’t work as well, the loss in economic activity would more than offset whatever was saved in Visa shareholder profits.
MSD1976 7y ago
Don't under-appreciate the benefits of having a portable, globally-ubiquitous, safe, instant method of consumer credit that is accepted by millions of merchants. Imagine it's 1920 and you want to buy a sewing machine, which is 3 months salary. You could save up for years, during which time you're not able to sew any clothes. After you've finally saved enough, you walk over to the merchant with a wad of cash. On the way, you get robbed or lose the cash. Tough luck; no sewing machine, no money. And as for the merchant, they lose out on the sale until the time the customer has enough cash. But maybe the merchant is willing to let you spread the cost over time. Great, now you can afford the sewing machine earlier and the merchant can book the sale sooner. But now the merchant has to hire staff to process bills and collect payment, they have to asses how likely each customer is to repay, they have to physically mail invoices and then drop payment off at the bank, etc. And every time the customer wants to make a purchase, they have to go through the long approval process with each individual merchant they shop at. No one likes waiting in lines. Fast forward to Visa/Mastercard...customer walks into practically any store in the world, hands over a piece of plastic (or taps their phone), and walks out with any item. They get an instant, no-questions-asked personal loan. 1. Great for merchants because they reap all the benefits of extending credit (e.g., higher sales) without any of the credit risk/back-office headaches; 2. Great for customers because they can buy anything, anywhere, instantly, regardless of whether they have enough money in their account at that particular moment. And neither party has to worry much about fraud, losing money/getting mugged, getting ripped off, etc. This enables literally trillions of dollars of spend and economic growth. I think that's worth the ~$10b profit Visa makes.
- wffurr 7y ago
  The service is incredibly useful. The profits returned as dividends are pure rent extraction and essentially a tax on global economic growth. That's why it should have a different structure. The mystery is why the member banks allowed it to become a for-profit entity and why governments continue to allow it to suck profits from their economies.
  - MSD1976 7y ago
    I'm sorry but why is what Visa does considered "pure rent extraction" versus any other for-profit business? Merchants may often gripe about the fees they're paying per transaction, but this ignores the tremendous benefits they receive. Yes, a huge retailer like Wal-Mart or Costco has the resources to extend credit, develop POS software, establish relationships with thousands of banks, etc. But do you think the corner bodega does? Or a restaurant that has 1% margins? It may sound simple: "eliminate cc fees and the merchant's margins go from 1% to 3%". But then you're hunting down customers for payment, mailing invoices, extending credit for 30-60 days. There's a real benefit to working capital to getting paid as soon as you swipe that card. As for why this is the structure...well, it used to non-profit and co-owned by all banks and it worked okay for a bit, but it's harder to balance incentives. And, banks were strapped for cash in 2008 (time of IPO). - https://money.cnn.com/2008/03/21/news/companies/visabanks/ https://money.cnn.com/2008/03/21/news/companies/visabanks/ - https://economix.blogs.nytimes.com/2008/02/25/visa-bailing-out-the-banks/ https://economix.blogs.nytimes.com/2008/02/25/visa-bailing-o... I would also disagree with your assessment that it "sucks profits from their economies". These networks truly create far more economic value than they themselves keep. And what they do keep isn't going up into outer space or getting incinerated....
    - kalleboo 7y ago
      Other places like Europe, Australia have capped interchange rates through regulation. Many countries have domestic cards with much lower (or even flat yearly rather than per transaction) fees. The fees don’t have to be as high as they are. Costs to chance delinquent debt should be included in the interest calculation
MSD1976 7y ago
Also, Visa was originally run as a non-profit until 2007, and was co-owned by all its member banks.
- wffurr 7y ago
  Complete mystery why they allowed it to become a for-profit entity. Are those member banks now shareholders? Does that mean they are profiting on the backs of all new entrants?
john_brown_body 7y ago
Instead of a non-profit, it should simply be nationalized and run as a utility. This not only eliminates the "tax on transactions", it would also transfer Visa's enormous power to structure markets (by cutting entities out of the payment processing system) from a private corporation to a body with at least some democratic accountability.
- MSD1976 7y ago
  Why should Visa be treated as a utility but not a company like google for example?
  - wffurr 7y ago
    That is an excellent question. Why isn't internet search also treated like a public utility?
    - MSD1976 7y ago
      Don’t know. Where and how do you draw the line?
      - wffurr 7y ago
        I would certainly draw it much closer to the public interest that it is now by most countries. In particular, "platform" businesses like Visa, Google, Amazon, etc. should at a bare minimum restricted from competing with the users of their platform. Ideally, the social value of the platform would be made public by a government buyout (aka nationalization) instead of flowing to the hands of the few select shareholders of the platform or subject to the whims of the platform company's executives.
      - wffurr 7y ago
        Here's a more concrete proposal from someone much closer to the ability to affect this sort of change. https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c https://medium.com/@teamwarren/heres-how-we-can-break-up-big.... It includes a definition of a "platform utility".
xyzzyz 7y ago
> They don't even reinvest their profits - they return them to shareholders. Yes, they leave it for their shareholders to decide how they want to reinvest their profits, as opposed to making this decision for them. > So the value of the "best business on the planet" is that it takes a percentage of every transaction and funnels it into the personal wealth of Visa shareholders? Yes, this is literally the only thing they do. They provide no service whatsoever, and it's strange that merchants decide to give them a cut into their profits for no reason at all. > Instead it sounds like it's just a driver of inequality simply because they have a captive market and no real competition. Yes, the company with ~20% of global market share has no real competition.
- wffurr 7y ago
  You could have written a constructive comment instead. For examples, see the replies by the author of the article in this thread. From the guidelines: "Be kind. Don't be snarky. Comments should get more thoughtful and substantive, not less, as a topic gets more divisive."

by wffurr 7y ago

rayiner 7y ago

Building a worldwide payment network creates more transactions and more value than whatever profits Visa makes from it. If a non-profit version didn’t work as well, the loss in economic activity would more than offset whatever was saved in Visa shareholder profits.

MSD1976 7y ago

Don't under-appreciate the benefits of having a portable, globally-ubiquitous, safe, instant method of consumer credit that is accepted by millions of merchants. Imagine it's 1920 and you want to buy a sewing machine, which is 3 months salary. You could save up for years, during which time you're not able to sew any clothes. After you've finally saved enough, you walk over to the merchant with a wad of cash. On the way, you get robbed or lose the cash. Tough luck; no sewing machine, no money. And as for the merchant, they lose out on the sale until the time the customer has enough cash. But maybe the merchant is willing to let you spread the cost over time. Great, now you can afford the sewing machine earlier and the merchant can book the sale sooner. But now the merchant has to hire staff to process bills and collect payment, they have to asses how likely each customer is to repay, they have to physically mail invoices and then drop payment off at the bank, etc. And every time the customer wants to make a purchase, they have to go through the long approval process with each individual merchant they shop at. No one likes waiting in lines. Fast forward to Visa/Mastercard...customer walks into practically any store in the world, hands over a piece of plastic (or taps their phone), and walks out with any item. They get an instant, no-questions-asked personal loan. 1. Great for merchants because they reap all the benefits of extending credit (e.g., higher sales) without any of the credit risk/back-office headaches; 2. Great for customers because they can buy anything, anywhere, instantly, regardless of whether they have enough money in their account at that particular moment. And neither party has to worry much about fraud, losing money/getting mugged, getting ripped off, etc. This enables literally trillions of dollars of spend and economic growth. I think that's worth the ~$10b profit Visa makes.

wffurr 7y ago
The service is incredibly useful. The profits returned as dividends are pure rent extraction and essentially a tax on global economic growth. That's why it should have a different structure. The mystery is why the member banks allowed it to become a for-profit entity and why governments continue to allow it to suck profits from their economies.
- MSD1976 7y ago
  I'm sorry but why is what Visa does considered "pure rent extraction" versus any other for-profit business? Merchants may often gripe about the fees they're paying per transaction, but this ignores the tremendous benefits they receive. Yes, a huge retailer like Wal-Mart or Costco has the resources to extend credit, develop POS software, establish relationships with thousands of banks, etc. But do you think the corner bodega does? Or a restaurant that has 1% margins? It may sound simple: "eliminate cc fees and the merchant's margins go from 1% to 3%". But then you're hunting down customers for payment, mailing invoices, extending credit for 30-60 days. There's a real benefit to working capital to getting paid as soon as you swipe that card. As for why this is the structure...well, it used to non-profit and co-owned by all banks and it worked okay for a bit, but it's harder to balance incentives. And, banks were strapped for cash in 2008 (time of IPO). - https://money.cnn.com/2008/03/21/news/companies/visabanks/ https://money.cnn.com/2008/03/21/news/companies/visabanks/ - https://economix.blogs.nytimes.com/2008/02/25/visa-bailing-out-the-banks/ https://economix.blogs.nytimes.com/2008/02/25/visa-bailing-o... I would also disagree with your assessment that it "sucks profits from their economies". These networks truly create far more economic value than they themselves keep. And what they do keep isn't going up into outer space or getting incinerated....
  - kalleboo 7y ago
    Other places like Europe, Australia have capped interchange rates through regulation. Many countries have domestic cards with much lower (or even flat yearly rather than per transaction) fees. The fees don’t have to be as high as they are. Costs to chance delinquent debt should be included in the interest calculation

MSD1976 7y ago

Also, Visa was originally run as a non-profit until 2007, and was co-owned by all its member banks.

wffurr 7y ago
Complete mystery why they allowed it to become a for-profit entity. Are those member banks now shareholders? Does that mean they are profiting on the backs of all new entrants?

john_brown_body 7y ago

Instead of a non-profit, it should simply be nationalized and run as a utility. This not only eliminates the "tax on transactions", it would also transfer Visa's enormous power to structure markets (by cutting entities out of the payment processing system) from a private corporation to a body with at least some democratic accountability.

MSD1976 7y ago
Why should Visa be treated as a utility but not a company like google for example?
- wffurr 7y ago
  That is an excellent question. Why isn't internet search also treated like a public utility?
  - MSD1976 7y ago
    Don’t know. Where and how do you draw the line?
    - wffurr 7y ago
      I would certainly draw it much closer to the public interest that it is now by most countries. In particular, "platform" businesses like Visa, Google, Amazon, etc. should at a bare minimum restricted from competing with the users of their platform. Ideally, the social value of the platform would be made public by a government buyout (aka nationalization) instead of flowing to the hands of the few select shareholders of the platform or subject to the whims of the platform company's executives.
    - wffurr 7y ago
      Here's a more concrete proposal from someone much closer to the ability to affect this sort of change. https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c https://medium.com/@teamwarren/heres-how-we-can-break-up-big.... It includes a definition of a "platform utility".

xyzzyz 7y ago

> They don't even reinvest their profits - they return them to shareholders. Yes, they leave it for their shareholders to decide how they want to reinvest their profits, as opposed to making this decision for them. > So the value of the "best business on the planet" is that it takes a percentage of every transaction and funnels it into the personal wealth of Visa shareholders? Yes, this is literally the only thing they do. They provide no service whatsoever, and it's strange that merchants decide to give them a cut into their profits for no reason at all. > Instead it sounds like it's just a driver of inequality simply because they have a captive market and no real competition. Yes, the company with ~20% of global market share has no real competition.

wffurr 7y ago
You could have written a constructive comment instead. For examples, see the replies by the author of the article in this thread. From the guidelines: "Be kind. Don't be snarky. Comments should get more thoughtful and substantive, not less, as a topic gets more divisive."