Visa Singapore is one of the biggest brands in the world with adverts present at almost every major international sporting competition that I can think of. Together with MasterCard, American Express and JCB, Visa has been the dominating method of payment that the masses have known for decades. As a company, it can be said that Visa’s investment moat is second to none in the payment networks sector. Visa and Visa Singapore will be used interchangeably in this article for keyword purposes. It doesn’t mean that Visa is a Singapore company.
In the past 10 years, Visa Singapore has been extremely profitable growing at immense pace and their share price has definitely caught up. So has MasterCard. With a worldwide presence, Visa also provides convenience to travellers. I personally make a point to enable my card before I go overseas. I do convert cash at the money changer before I go overseas, however, being overseas, I never know when I will need money.
In our increasingly connected world and with the government driving the country towards a cashless society, there has been a lot more new ways to make payment such as Google Pay, Apple Pay, PayNow, GrabPay DBS PayLah, PayPal and so on. With the introduction of so many avenues of payment, it seems like the investment moat of these traditional old boys is being disrupted. Moats do not last forever, perhaps the moats of these companies is starting to be drained? Or perhaps, it is already drying? If you want to understand more about investment moat, check out this article first before proceeding further.
Let’s take a look at how each of these new payment methods works and how they are disrupting the investment moat of traditional big boys. After reading this article, proceed to part 2 and part 3 for a more holistic understanding. By then, you should have a better clarity towards this question “Is Visa still good to invest in?”
Traditional payment networks – Visa Singapore Included
- Cheques/Traveller’s Cheques
Mankind has had ways to go cashless for hundreds of years, especially useful for travelling merchants and huge purchases. Afterall, you cannot be carrying many chests of gold coins travelling between cities to buy a house. Without looking abroad, the traditional payment methods that we are familiar with in Singapore are cash, NETS, Visa Singapore, MasterCard, American Express and JCB.
Despite all being payment methods, there are some differences between them. This fact will actually be a surprise to many, especially those of the older generation.
The fact is that Visa/MasterCard is NOT a credit card. It is a payment network linking merchants and banks. I can still remember the face of disapproval when I got my first debit card with MasterCard logo on it. Unfilial boy getting himself into debt even before he got make money. As Visa and MasterCard appears on many credit cards, many people believed that Visa and MasterCard are credit cards. It doesn’t helps when money are not immediately debited from your bank account, unlike NETS. To many elderly, NETS is ok, Visa/MasterCard are not ok.
The only credit card listed are American Express and JCB who also double up as a payment method.
Visa, MasterCard and NETS works by linking merchant’s banks and cardholder’s banks to the Visa network when a purchase is made.
Credit cards that are issued by banks with Visa/MasterCard function have credits loaned to you by the bank and not Visa/MasterCard. Visa Singapore and MasterCard do not offer loans. Somehow due to the presence of Visa and MasterCard on credit cards, many has grew to think that any card with the Visa/MasterCard logo on it are credit cards.
Unlike Visa/MasterCard, American Express and JCB are credit card companies. They issue their own cards and offer credits to cardholders. Whenever a transaction takes place, the payment will go through their network.
Here’s a video on how Visa Singapore work.
Visa, MasterCard and NETS has provide a very convenient alternative way of cashless payment for consumers. For Visa and MasterCard, they are able to tap on credits issued by banks without dealing with the credit recovery.
For merchants, it provides an alternative to collect payment from customers. As their network is so extensive around the world, with the exception of NETS, most merchants would need to utilise their services. NETS is a local network, therefore, most merchants will also use it.
Due to the international nature of Visa, MasterCard, American Express and JCB, merchants that traditionally caters to tourists such as hotels and airlines have to utilise their network. It helps also as the payments are collected in the merchant’s own currency. Therefore, it dealt with the issue of tourist not having enough foreign currency to pay.
Merchants has to bear the additional cost of using the network which is a percentage of the transacted amount.
How it disrupts
In the dinosaur era where card payment networks do not exist, cash and cheques were used for payment. For travels, foreign currencies and traveller’s cheques were used. To pay for large amount, it means carrying a lot of cash or issuing a cheque. For travellers, it also means carrying a lot of foreign currency or using traveller’s cheque until you run out of both of them. Oops.
Here are two very cool images of traveller’s cheque issued by Visa and Thomas Cook & Son. In which the latter was issued to be used before World War 1, about 100 years ago. There you go, cashless transactions before many of us were born.
These payment methods solve all of them with a card. Simply present a card, sign and tadaa!!! Payment made.
- Telegraphic Transfer
Other forms of payment methods utilises the banking system. The traditional methods of payment are GIRO which amazingly dates back more than 2000 years ago and Telegraphic transfers.
Both allows transfers of funds from one account to another. Locals might not be so familiar with telegraphic transfers as it such interbank fund transfer among local banks has effectively been replaced by FAST.
To the consumer, all they have to know is which company/bank account to sent the funds to and initiate it on their side. In our 21st century Singapore, consumers have to use their internet banking platform to add a new payee, verify using their tokens and send the funds over from their bank account using FAST. Transfers are immediate.
FAST allows the masses to transfers money to family, friends and corporate easily and quickly.
No credits possible as you are transferring funds from your bank account.
No cost (For FAST and GIRO). There is a small charge for telegraphic transfers.
GIRO relieves the hassle for bill payments for a lot of us. With a GIRO arrangement in place, our electricity, telephone, insurance bills and so on are automatically deducted from our bank account.
Easy transfers of large amounts from one bank to another.
Not a viable option for fast moving merchants. No one will be wiping out their phones/laptops to log onto their internet banking platform to add McDonald’s as a new payee just for an Oreo McFlurry. It is also impossible for merchants to check on the receiving of funds for fast-moving over-the-counter transactions.
Telegraphic Transfers can take a few days to clear and cost some money.
How it disrupts?
It provides another avenue to easily make cross-border transfers and inter-party transfers. It caters to a different set of needs, such as transfers that are not retail transactions in nature. For a company that are paying that are paying wages, they would not be using credit cards to pay. They would be using the different forms of bank transfers. Especially for GIRO arrangements, it allows the continual debiting of funds from one account to another. Therefore, they do not really disrupts the operations of traditional payment networks, they are simply another way to transfer funds and they cater to another need.
Here we have looked at the different methods to make payments and transfer funds. These methods have existed for many years and are very commonly used in our society.
Up till now, none of the mentioned has been disruptive towards traditional payment networks like Visa. Therefore, as of now, Visa’s investment moat is still intact. In the next part of the article, we will share about the other forms of payment methods as fund transfers, starting with PayNow.
Investment in Singapore for Beginners
To prepare yourelf to take advantage of the opportunities the stock market presents you is to educate yourself. Chloe Lin, the founder of Invest Travel Play (ITP), was featured on Singapore national papers 联合早报 (Lian He Zao Ba) on 22 Aug 2018, which she actually shared a simple strategy to help readers to start investing safely with just $360 and building up your passive income in Singapore!
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By the way, we also wrote an article on Facebook and Tesla, Singtel Share Price, 800 Super Share Price, Future of ESR-REIT and Viva Industrial Trust (VIT) if you are looking to invest to make passive income. Oh yes, we also wrote an article sharing how you can invest in bitcoin Singapore, just in case you’re looking for alternative ways of investment.