Visa's Duopoly Dominance: A Key Factor in Long-Term Investment Success

The credit card business is often misunderstood as a single industry category. However, it's actually composed of multiple layers, each with distinct business models and investment theses.

There are three key components involved in processing credit card payments: the card-swiping device, which is usually supplied by companies like Verifone or Block; the consumer and their credit card issuer, who assume all the lending-based risk; and the payment network operators, such as Visa and Mastercard, that handle transactions between card readers and transaction approvals.

Payment network operators like Visa and Mastercard have proven to be more resilient than lenders, with consistent performance over the past decade. They don't face risks of loan write-downs or defaults when the economy sours and have a duopoly-like control of the payment-middleman portion of the credit card market.