Visa & MasterCard

In 1949 Frank McNamara was having dinner in a Manhattan restaurant and when the bill came he realized that he had left his wallet at home. By the time his wife arrived and the bill had been settled, McNamara was deep in thought. After ruminating for sometime McNamara came up with the idea of using charge cards in restaurants. A charge card is a credit card that must be paid in full at the end of each billing cycle. In 1950 McNamara cofounded Diners Club. Click here to read the rest.

13 thoughts on “Visa & MasterCard

  1. Very beautifully-explained article. Thanks for putting this up.
    One thought: Along with pricing power that comes with network effects, businesses that take a cut from transaction value (like Visa & Master Card do with interchange fee) have a natural inflation-hedge built in their revenue model. In an inflationary environment as the value of transactions increases, their fee automatically increases in absolute amount.

    • Prashant,

      Thanks and Yes you are absolutely right about the inflation hedge that V and MA has.


  2. Excellent Write Up.

    Was a bit perplexed by your comments on blockchain. While banks have no incentive to dis-intermediate, merchants do have a strong incentive.

    Looking at it through a merchants eye’s some questions which come up – (a) Does it, in time, result in a lowering of fee’s charged to merchants? (b) If merchants are to move to a blockchain settlement – how do they get customers to switch (c) Does this lead issuing banks to offer more incentives (cashbacks, loyalty points etc) to card holders?

    My uninformed view is that while blockchain may not be an existential threat to Visa or Mastercard, there is a good chance that it may lead to a loss of pricing power.

    • Thanks Yash. My understanding was the blockchain creates a big disintermediation threat to V and MA. Let me think more on the lines you mentioned.


  3. Good one sir. I read all the share you keep giving us on Pocket and they are all compounding my understanding. In one article you wrote on Nestle that your child consumed lot of Cerelac and if you would have bought the stock of Nestle you would have made money then, I read that many great investors including Sunil Sighania bought GSK Healthcare after his son had an injection that was for Hepatitis and made it cost free in a few months. Its in all you great investors mind I guess. Keep posing and making us wiser sir.

    • Pankaj,

      Thanks. In five years $88 to $131 will translate to a CAGR of around 8.25 percent. I got that $131 by compounding earnings at 15 percent and an exit multiple of 18.


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