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Anyone building a card processing business is going to have trouble finding long-term cash flow because the margins are razor thin. For example, Visa processed

by ajsharp 13y ago

Anyone building a card processing business is going to have trouble finding long-term cash flow because the margins are razor thin. For example, Visa processed $6.7 trillion in transactions and made $10.4bn in revenue. I'd rather do business with someone like Balanced, who has a larger product vision than "well paypal sucks".

cperciva 13y ago
the margins are razor thin. For example, Visa processed $6.7 trillion in transactions and made $3bn in revenue. I don't care how thin the margins are, I'd love to have $3B of revenue.
- ajsharp 13y ago
  Ha, wouldn't we all :) My point is only that it's damn hard to get to that number, and if you're a startup who's raised many rounds of capital, after a few years of grinding an acquisition by a company like paypal (read: ebay) starts to look like a nice option. To put that Visa number into perspective, according to various reports Square did $15bn in transaction volume last year. So, if you use the same ratio of transaction volume to revenue (0.16%) that would put Square's revenue at $23.2mln. For what it's worth, that's probably a generous ratio, as companies like Square and Braintree are all use Chase payments tech as their processor, which itself has to pay out to Visa and other processors. So these firms' margins are likely much lower than Visa's. As either a customer or a partner of one of these companies, I'd prefer doing business with a company that's building a base that doesn't essentially require acquisition if they can't grow to Visa's size.
- deleted 13y ago
  [deleted]
pdog 13y ago
That $3 billion in revenue is for the April-June quarter, during which Visa processed $1.74 trillion in transactions.
- ajsharp 13y ago
  Yep, you're right, my fault, will fix.
aquark 13y ago
Anyone know how the fees in the industry break down then ... $3bn is < 0.05% of the transaction volume ... that seems tiny to me! Though all I know is the headline rates quoted for most common processors where <2% seems very aggressive. Who gets the other 1.95% of that?
- ajsharp 13y ago
  My apologies, I mis-quoted the annual number, which is about $10.4 bln, which is still only about .16%. Still, your question, "Who gets the other 1.95% of that?", is valid. My guess: the card issuers themselves, who operate the networks (Visa, MC, Amex, Discover). Throw a little on top for Chase PaymentTech and the like.
  - deleted 13y ago
    [deleted]
- cstejerean 13y ago
  The issuing bank and the acquiring bank generally split that, with about 1% or so going to each.
sologoub 13y ago
Not sure that's a good comparison. They are basically a merchant account as a service. Retail rate is 2.9% + $0.30. Businesses with strong transaction history and good volumes can get much lower than that from the traditional providers. The merchant account business has higher numbers than Visa processing business.
- ajsharp 13y ago
  How do you figure? Visa sees a piece of every card transaction involving a visa card.
  - cstejerean 13y ago
    The percentage that Visa charges should be much lower than what Stripe / Braintree charge. Visa can afford to stay in business at a fraction of a percent because they make it up in Volume.
scalenemuscles 13y ago
Balanced, Stripe, Braintree, and a host of other companies are trying to build a great payments platform. What makes Balanced any different from the others in this case? Isn't Balanced also based on the premise that "well paypal sucks"?
- jareau 13y ago
  (I'm a co-founder of Balanced) Balanced's mission is to increase the global economy by enabling new commerce. Our current mechanism to do that is with payments [1]. So we don't actually want to build a processing company, per se, but we're finding that's the best way to accomplish our mission right now. At some point, it's likely that we'll have to make changes to our mechanism, but until then we feel building the world's first open source payments infrastructure company [2] is a great way to accomplish our goal. [1] https://www.balancedpayments.com/about https://www.balancedpayments.com/about [2] http://www.fastcolabs.com/3008944/open-company/why-i-made-my-payments-startup-an-open-company http://www.fastcolabs.com/3008944/open-company/why-i-made-my...

by ajsharp 13y ago

cperciva 13y ago

the margins are razor thin. For example, Visa processed $6.7 trillion in transactions and made $3bn in revenue. I don't care how thin the margins are, I'd love to have $3B of revenue.

ajsharp 13y ago
Ha, wouldn't we all :) My point is only that it's damn hard to get to that number, and if you're a startup who's raised many rounds of capital, after a few years of grinding an acquisition by a company like paypal (read: ebay) starts to look like a nice option. To put that Visa number into perspective, according to various reports Square did $15bn in transaction volume last year. So, if you use the same ratio of transaction volume to revenue (0.16%) that would put Square's revenue at $23.2mln. For what it's worth, that's probably a generous ratio, as companies like Square and Braintree are all use Chase payments tech as their processor, which itself has to pay out to Visa and other processors. So these firms' margins are likely much lower than Visa's. As either a customer or a partner of one of these companies, I'd prefer doing business with a company that's building a base that doesn't essentially require acquisition if they can't grow to Visa's size.
deleted 13y ago
[deleted]

pdog 13y ago

That $3 billion in revenue is for the April-June quarter, during which Visa processed $1.74 trillion in transactions.

ajsharp 13y ago
Yep, you're right, my fault, will fix.

aquark 13y ago

Anyone know how the fees in the industry break down then ... $3bn is < 0.05% of the transaction volume ... that seems tiny to me! Though all I know is the headline rates quoted for most common processors where <2% seems very aggressive. Who gets the other 1.95% of that?

ajsharp 13y ago
My apologies, I mis-quoted the annual number, which is about $10.4 bln, which is still only about .16%. Still, your question, "Who gets the other 1.95% of that?", is valid. My guess: the card issuers themselves, who operate the networks (Visa, MC, Amex, Discover). Throw a little on top for Chase PaymentTech and the like.
- deleted 13y ago
  [deleted]
cstejerean 13y ago
The issuing bank and the acquiring bank generally split that, with about 1% or so going to each.

sologoub 13y ago

Not sure that's a good comparison. They are basically a merchant account as a service. Retail rate is 2.9% + $0.30. Businesses with strong transaction history and good volumes can get much lower than that from the traditional providers. The merchant account business has higher numbers than Visa processing business.

ajsharp 13y ago
How do you figure? Visa sees a piece of every card transaction involving a visa card.
- cstejerean 13y ago
  The percentage that Visa charges should be much lower than what Stripe / Braintree charge. Visa can afford to stay in business at a fraction of a percent because they make it up in Volume.

scalenemuscles 13y ago

Balanced, Stripe, Braintree, and a host of other companies are trying to build a great payments platform. What makes Balanced any different from the others in this case? Isn't Balanced also based on the premise that "well paypal sucks"?

jareau 13y ago
(I'm a co-founder of Balanced) Balanced's mission is to increase the global economy by enabling new commerce. Our current mechanism to do that is with payments [1]. So we don't actually want to build a processing company, per se, but we're finding that's the best way to accomplish our mission right now. At some point, it's likely that we'll have to make changes to our mechanism, but until then we feel building the world's first open source payments infrastructure company [2] is a great way to accomplish our goal. [1] https://www.balancedpayments.com/about https://www.balancedpayments.com/about [2] http://www.fastcolabs.com/3008944/open-company/why-i-made-my-payments-startup-an-open-company http://www.fastcolabs.com/3008944/open-company/why-i-made-my...