Visa Keeps the Small PartWide moat

The most common error about this business is to confuse the merchant fee with Visa's revenue. On a typical transaction the merchant discount runs well over a hundred basis points; Visa's take across all its volume is about twenty-nine¹. Interchange, the largest component, is set by Visa and paid by the acquirer to the issuer, and never touches Visa's income statement.

That arrangement does a great deal of work. Visa sets a price it does not collect, which lets it set the price high without appearing to profiteer, and means the parties most invested in keeping it high are thousands of banks rather than one company. When merchants sue, they sue Visa. When interchange is capped, the money comes out of the banks.

It also makes Visa's own economics far more defensible than the headline fee suggests. Cap interchange to zero tomorrow and Visa still has a network to run and a fee to charge for running it — which is essentially what Europe demonstrated after 2015, where the networks came through comfortably. The thing genuinely at risk is not Visa's slice. It is the enthusiasm of the banks that receive the rest, and that transmits to Visa through the incentive line rather than through the price.

The structural point worth holding onto: Visa's pricing power is real but it is exercised on behalf of somebody else, which is why it has survived so long and why it is so hard to defend in a hearing room.