Payments

Payments companies sit in the middle of nearly every electronic transaction. When you swipe a card, multiple players take small fees: the network (Visa, Mastercard), the issuing bank (your card's bank), the merchant's payment processor, and sometimes a fintech in between.

It's an enormous tax on commerce that adds up to hundreds of billions a year in fees, mostly invisible to consumers.

You tap your card. The merchant's processor (Stripe, Square, Worldpay) sends the transaction to the network (Visa or Mastercard). The network checks with your bank. Your bank approves. The merchant gets paid (minus fees).

All of this happens in about 2 seconds, billions of times a day, with multiple companies taking a small cut at each step.

Interchange fees — what merchants pay every transaction, split between banks and networks. Network fees — Visa and Mastercard charge for using their rails. Processing fees — Stripe, Square, Adyen charge merchants per transaction.

The networks (Visa, Mastercard) make pure margin because they don't lend money or hold inventory — they just operate the rails.

Visa and Mastercard built networks that everyone else has to use. Building a competing global network would cost tens of billions and decades. Once you have the network, the marginal cost of one more transaction is essentially zero.

Add to that no credit risk (the issuing bank takes that on), no inventory, no factories, and growing volumes — and you have one of the best business models in the public market.

Networks (Visa, Mastercard, American Express) operate the rails everyone uses. Stable, profitable, growing at ~10% a year.

Fintechs (PayPal, Block, Adyen) sit on top — they make the user experience better for merchants and consumers. More competitive landscape, more dependent on innovation.

Regulatory scrutiny — multiple governments have tried to cap interchange fees. Some have succeeded (EU caps).

Cryptocurrency and central bank digital currencies could route around card networks. Slow-moving threats so far. And recessions reduce transaction volume (fewer purchases) — though Visa is still less cyclical than most.