Do You Know That Visa Doesn’t Issue Credit Cards? Then, How Does Visa Make Money?

Visa is a publicly traded payments technology company headquartered in San Francisco. As the world’s leader in digital payments, Visa operates the most prominent electronic payment network and processed over $11.6 trillion in payments last fiscal year alone. But how does Visa make money? Let’s take a closer look.

Visa Company Profile

Visa is a fascinating company that has been in business for over 60 years. They have started facilitating payments between consumers and businesses since 1958. As a publicly traded payment technology corporation, Visa made an annual revenue of over 29.3 billion dollars and employed nearly 26,500 individuals worldwide in the fiscal year 2022. 

The company is dedicated to facilitating global commerce and money movement across over 200 countries and territories. Visa’s payments and cash volume were $14 trillion in the fiscal year 2022. There were 4.1 billion credentials available worldwide to be used at more than 80 million merchants, plus an estimated 20 million locations through payment facilitators.

How does Visa make money? Let’s understand how it works.

When you use your Visa card to buy goods or services, it’s a simple process.

First, the merchant presents your transaction data to an acquirer. This is usually a bank or third-party processing firm that supports accepting Visa cards or payment products. The acquirer then verifies and processes the transaction through VisaNet, which is the network that connects all of the parties involved in the transaction: Visa, issuers, acquirers, and merchants.

After this is done, Visa checks the account holder’s account or credit line for authorization through the issuer. If it’s approved, then the issuer effectively pays the acquirer an amount equal to the value of your transaction—minus a small interchange reimbursement fee—and then posts it to your account. Finally, the acquirer pays out what it owes to the merchant—minus the merchant discount rate (MDR)—and they’re all done!

Source: Visa annual report 2022

Let’s take a closer look at Visa’s Revenue.

As stated in their report, Visa is neither a bank nor a financial institution, so they do not issue cards or extend credit. They also don’t set rates and fees for account holders of Visa products, nor do they generate revenues from or bear credit risk for any of these activities.

How does Visa make money if the company doesn’t earn money from issuing credit cards?

Visa’s business generates revenue by facilitating money movement across more than 200 countries and territories among a global set of consumers, merchants, financial institutions, and government entities, minus client incentives agreements with their clients. The client incentives are offered to financial institutions, merchants, and strategic partners to boost payment volume, increase usage of Visa products, attract transactions to the Visa network, and encourage innovation. Visa’s net revenues consist of the following:

  • Service revenues (which are generated through providing services to a client using Visa payment services).
  • Data processing revenues (which are earned through the provision of authorization, clearing, settlement, value-added services, network access, and other maintenance support services that enable transaction and information processing for clients around the world).
  • International transaction revenues (which are obtained from cross-border transactions and currency conversion services).
  • Other revenues (primarily come from value-added services, licensing fees for using the Visa brand or technology, and fees for account holder services, certification, and licensing).

If Visa doesn’t issue credit cards, is it Halal to invest in?

Muslim investors should know the screening criteria to understand if a company is Shariah-compliant (halal) or not to invest in. Various organizations and standard-setting bodies have established criteria, which have been approved by each organization’s Shariah advisors and committee. AAOIFI is a well-known international standard-setting body that also sets the halal equity criteria. Musaffa Halal Stock Screener adopts the AAOIFI methodology to determine the Shariah-compliant status of the stock.

Following the AAOIFI stock screening criteria, a stock is considered Shariah compliant (halal) if the company’s not halal revenue doesn’t exceed 5% of its total revenue, and the proportion of interest-bearing securities, assets and debt is less than 30% of the company’s market capitalization.

According to Musaffa Halal Stock Screener, Visa passed its business screening as its non-halal income is only 0.69%, which is less than 5% of its total revenue. Additionally, Visa passed the financial screening with 5.31% in interest-bearing securities and assets and 4.81% in interest-bearing debt, both of which do not surpass 30% of the company’s market capitalization.

So, the Visa stock meets the requirements for being halal (Shariah compliant) stock and can be invested in by Muslim investors as long as they pay the purification amount for holding the stock.

Read the full screening report of Visa here.

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