What I Learned Reading Visa Inc (V)’s Annual Report

“Other guys read Playboy. I read annual reports.”

— Warren Buffett

I’m not quite as fanatical as Warren, but I do enjoy digging into a company’s annual report to learn something new.

I’ll be reading a slug of annual reports (called 10-Ks) over the next few weeks, first page to the last. This week: Visa Inc (NYSE:V) .

Here are five things I learned from Visa’s annual report (which you can read here).

Everywhere you want to be
I knew Visa was the biggest player in the industry, but I didn’t realize that by most measures, it’s nearly twice the size of rival Mastercard Inc (NYSE:MA). This table lays it out nicely:

Credit is back to driving growth
Credit payment volume growth plunged during the financial crisis, but debit-card growth made up the slack. Now things are changing. With consumer debt deleveraging ending and the economy on the mend, credit is back in the driver seat:

Nominal payments volume

How Dodd-Frank affects Visa
The Dodd-Frank financial reform bill put certain restrictions on debit-card interchange fees. Visa Inc (NYSE:V) gives a good explanation of how this affects its business. In short, it hurts banks, which lowers the incentive for banks to get their customers to use debit cards:

Interchange reimbursement fees are typically paid to issuers — the financial institutions that issue Visa cards to cardholders. The fees are typically paid by acquirers — the financial institutions that offer Visa Inc (NYSE:V) network connectivity and payments acceptance services to merchants … We generally do not receive any portion of interchange reimbursement fees in a transaction. They are, however, a factor on which we compete with other payments providers and are therefore an important determinant of the volume of transactions we process. Consequently, changes to these fees can substantially affect our revenues and the pace or breadth of overall payment electronification … When we cannot set default interchange rates at optimal levels, issuers and acquirers find our payments system less attractive. This lowers overall transaction volume and slows growth of transactions. It also may increase the attractiveness of closed-loop payments systems — those with direct connections to both merchants and consumers — and other forms of payment.