Mental Models discussed in this podcast:

• Credit
• Rent-Seeking
• Networking Effects

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Show Outline: Credit Card Company Investing

The full show notes for this episode are available at https://www.diyinvesting.org/Episode43

Four Major Credit Card Companies

• Visa (V) - payment processor
• Mastercard (MA) - payment processor
• American Express (AXP) - payment processor and bank (high-end focus)
• Discover Financial (DFS) - payment processor and bank

The Business Model of Credit Card Companies

• Take a cut of all transactions on the payment network
• Credit risk vs no credit risk
• Payment processor
  • Extremely valuable service to the marketplace

Quality of the business:

• Extremely high for Visa and Mastercard
• Quite high for American Express and Discover as well
• Automatically inflation-adjusted sales growth

Potential Threats

• Overvaluation (particularly for Visa and Mastercard)
• New payment mechanisms such as digital currency like bitcoin
• A resurgence in cash (unlikely)

Summary

Investing in credit card companies is an extremely attractive proposition. They are some of the highest quality companies in the world with clear inflation-adjusted growth.

References

• https://en.wikipedia.org/wiki/Card_scheme