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.
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