One dominant narrative of blockchain technology is that it will disintermediate traditional financial services, leading to the demise of traditional firms. While I agree with the premise, I disagree with the conclusion. Traditional firms are very well-positioned to take market share from their current competitors and dominate the next two decades of financial services. In this article, I conduct a SWOT analysis for Visa and describe the strategic opportunity for the payments network in a world where public blockchains are ubiquitously adopted.

Assumptions

Public blockchains are not widely adopted, and they are not currently ready for ubiquitous adoption. However, the technical direction of travel is positive, so I assume that there is a point in the future where blockchains are ready for ubiquitous adoption. In this article, I anticipate an end state of mature technology, regulation, and consumer education. The following are characteristics of that end state:

• Blockchain scaling technology, whether via high-performance monolithic chains or layered scaling, is mature enough that businesses and consumers can reliably expect transactions that cost <$0.01 and propagate within a few seconds. Payments are programmable which has allowed developers to create new, pleasing payment experiences that we can currently not imagine.
• U.S. and int’l regulation of blockchain-based financial services is at reasonable parity with regulation of traditional financial services. Regulations are sufficiently strict for consumers, investors, businesses, and financial institutions to feel they can use blockchains without undue risk, but they are not prejudiced against blockchain financial services.
• Because blockchain payments are an order-of-magnitude improvement in cost and UX, consumer payment preferences have migrated over time.

In this world, the traditional provision of financial services is disrupted, and incumbent financial institutions must adapt.

SWOT Analysis

Item		Relative importance (out of 10)
Strengths
	Large distribution network	10
	Access to large amounts of off-chain payments and fraud data	9
	Strong cash flow	5
	Excellent brand recognition and favorability	3
Weaknesses
	Reliance on banks as crucial partners	10
	Large company may not adapt to new requirements well	7
	Tech upgrades can take a long time to proliferate to cards and terminals	5
Opportunities
	Use existing distribution network to cut out banks, increase take rate	10
	Offer unique consumer benefits on blockchains using private network rules	10
	Develop fraud detection technology for crypto payments	10
Threats
	Blockchain payments can be an order of magnitude cheaper than current card payment prices	10
	Public, permissionless blockchains allow anyone to join a payments network instantly, threatening the value of Visa’s network	8
	Crypto’s inherent properties weaken the value proposition of existing Visa investments	4

Strengths

Visa has a large distribution network. Visa’s core asset is its large distribution network. They connect 4.2b cards with over 100m merchants, one of the largest networks in the world. Networks are incredible assets because they theoretically grow quadratically more valuable as new nodes join the network (Metcalfe’s law). This property means that companies with large networks tend towards monopoly because it’s very hard for any competitor to recreate the network. This is the core strength underlying Visa’s entire business.

Visa has access to large amounts of off-chain payments data. High-quality blockchain analysis often requires some level of off-chain data. For example, wallet tagging, the primary service offered by blockchain intelligence providers such as TRM Labs, Nansen, and other companies, is the process of matching an entity’s off-chain identity with its blockchain address. Everyone has access to on-chain data, but few companies are able to join on-chain data with a large dataset of off-chain data. If Visa were to move into blockchain payments, it would be one of only a few companies that could build effective fraud-prevention systems for blockchain payments, a significant unsolved problem.

Visa has strong cash flow. As of June 30, 2023, Visa had $18.8b in cash, cash equivalents, and investment securities on its balance sheet, and it was on-track to generate $17.5b of free cash flow in its fiscal year 2023. This strong financial position should allow it to make long-term investments that may not generate strong and consistent cash flows until far in the future.

Visa has excellent brand recognition and favorability. According to YouGov, Visa has 98% brand recognition and 70% favorability in the United States, which makes it one of the most recognized AND most liked financial services brands out of 53 surveyed brands. This asset can enable new product launches and engender consumer trust when moving into new areas.

Weaknesses

Reliance on banks as crucial partners. This is a critical weakness. 95% of Visa gross revenue comes from card transaction fees, for which banks are crucial distribution partners.¹ Because Visa relies on banks for almost its entire business, it will be hard for Visa to build any new products that may disrupt or threaten bank revenue models. Banks unhappy with Visa’s development of competitive, disruptive products may switch to competitive networks like Mastercard. Visa would have to find a way to manage existing relationships or push for fast consumer adoption to minimize reduced earnings and sour investor sentiment. By removing this critical dependence, though, Visa could bolster its future growth and resiliency.

Visa is a large company that may not adapt quickly. Developing and operating products for public blockchains requires new skills and knowledge from every business function. Because the operation of public blockchains is so radically different from existing systems, I assume that larger organizations will be less able to pivot than smaller organizations.

Tech upgrades to cards can take a long time. There are currently over four billion Visa cards in existence and hundreds of millions of payment terminals aligned with the technical requirements of those cards. If blockchain payments were to require a change in card technology, it could take years for new cards to penetrate Visa cardholders. The most recent card upgrade was the addition of EMV technology (chip + NFC). U.S. EMV migration started in 2012. By EOY 2018, just 47% of card-present transactions took place with EMV cards, and by EOY 2021, only 78% of card-present transactions used the technology.

Opportunities

Visa can enable blockchain payments on its existing distribution network and increase its take rate on card payments. To reiterate, Visa’s core asset is its massive distribution network. Even when building on public blockchains, which are networks of their own, the ability to unify hundreds of millions of consumers and businesses around a single standard such as the form factor of a crypto wallet (i.e., linked to a payment card) is an immense asset. Visa could upgrade its cards to allow consumers to pull funds from a crypto wallet and upgrade its network to pass blockchain instructions to merchant payment terminals. This would enable ubiquitous, worldwide crypto payments facilitated by the Visa network.

By turning on crypto payments, Visa would continue its existing business model (unifying buyers and sellers on a single network and standard) while moving to a new payment rail that is not intermediated by banks. By operating on a payment rail free from costly bank intermediation, Visa could split the would-be bank fee with the merchant, cutting costs for merchants while increasing margins for Visa. 

Visa is uniquely positioned to offer special consumer benefits by overlaying private network rules on top of blockchain payment rails. Payment reversibility for chargebacks or fraud protection is thought to be a barrier to consumer adoption of blockchain payments. However, all that is needed to enable reversibility is a socio-legal system that can threaten a cost on the payee that is greater than the benefit of keeping an inappropriate payment. While payments can settle technically, final settlement is ultimately a socio-legal construct enforced by an appropriate authority. This is often the government, but it can also be a private actor.

As critical infrastructure for merchants conducting business, Visa has the ability to enforce private rules almost as effectively as any government. By applying sanctions backed by the ability to kick a merchant out of the network, Visa can threaten a cost to an uncooperative merchant that is greater than the value of any one payment. This means Visa can play a quasi-judicial role in providing consumer benefits such as chargebacks or fraud protection. To the extent that these features are preconditions for unlocking consumer blockchain payments, Visa may be one of the few entities in the space that can provide them today. This is a fantastic way for Visa to preserve its position in a consumer payments industry that has migrated to blockchains: although consumers using blockchains can route around Visa’s network and pay the merchant directly, they may choose not to if they can pay with a Visa card and keep convenient consumer protections.

The provision of some consumer privileges might also become a regulatory requirement for consumer blockchain payments. In a previous article about the application of Regulation E to on-chain payments, I explained that private network rules (such as the debit card network rules) are crucial for the allocation of liability for unauthorized transactions imposed by Regulation E on financial institutions. The same situation may arise for on-chain payments. To maximize future profit, Visa should begin thinking about how to lobby the CFPB and Members of Congress to enshrine its monopoly in regulatory guidance.

Visa is uniquely positioned to develop and sell fraud detection for on-chain crypto payments, even outside of its own network. Because blockchain payments have quick finality and may occur outside of current legal structures, fraudulent payments are a significant obstacle to adoption. While fraudulent payments obviously can be reversed (i.e., by requiring the recipient to send the money back), this can be very costly in time and other resources. And in situations where the payor and payee are not subject to the same legal regime, it may be impossible to force the payee to return the payment. Therefore, effective fraud detection and prevention software will be very valuable products in a world of blockchain payments.

All or almost all of the necessary components to develop incredibly efficient, real-time fraud prevention now exist. The cost of compute has fallen dramatically. Advanced algorithms, up to and including “artificial intelligence,” are mature or can be developed. In contrast to incumbent real-time payment systems, the natural transparency of blockchains will allow financial institutions to maintain a current, universal view of all real-time payment activity. And crucially, Visa has all of the data required to develop this product: the on-chain data, which is publicly accessible and free to everyone, and proprietary off-chain data that includes historical results of fraudulent activity.

Off-chain data is crucial to identifying fraud and validating analyses. It’s impossible to know if a specific blockchain transaction was part of fraudulent activity based purely on on-chain data. For example, a consumer or merchant must report to an authority that a particular payment was fraudulent (an attestation that occurs off-chain). Therefore, to build effective anti-fraud tools, a company has to be able to link on-chain data with proprietary, off-chain data. By sitting in the middle of the fiat and blockchain payment rails, Visa could develop this capability and become one of the few entities able to develop effective fraud detection algorithms. If all payments are on-chain, fraud prevention will be even more effective compared to current systems because financial institutions will have a global view of payments and can detect fraudulent developments on the network in real-time.

While Visa would naturally use its own anti-fraud tools for blockchain payments offered within its own network, it could also offer the tools as an independent service to any financial services company operating on a public blockchain. This may be what Visa is doing today for the TCH Real Time Payments (RTP) Network: it appears to offers the RTP Protect product, anti-fraud software, based on analysis of RTP data it collects in offering its other products. Selling to unaffiliated financial institutions would increase the total addressable market for the anti-fraud technology, diversify Visa revenue, and make on-chain payments safer, benefiting the entire ecosystem.

Threats

Blockchain payments can be an order of magnitude cheaper than current card payment prices which may lead to behavioral change. As one would expect, the real cost of processing payment messages is very small. In 2019, the average network fee for a card payment, as a percentage of the value of the transaction, was 2.3 bps, the average cost for authorization, clearing, and settlement was 0.1 bps, and total fraud losses were 12.9 bps in 2019.² However, the average interchange fee for dual-message, Durbin-exempt debit transactions on the Visa network was 144 bps.

Blockchains can be much cheaper. Under our assumptions, all payments will have a flat fee <$0.01. That is the reality today on networks such as Solana. In the Ethereum ecosystem, USDC transactions tend to cost $0.05 – $0.15 on L2s, so with the addition of payment-focused layer 3s that I expect to emerge,³ message transmission costs should decline to sub-cent levels consistently.

At the most basic level, then, accepting blockchain payments will be essentially free for merchants, a significant improvement in cost of payment acceptance. Even if merchants pay for software that makes it easier to accept, track, and manage consumer payments, the cost of such services is likely to be lower as well. Almost all wallet software today can generate a QR code, log transactions, and keep funds secure for free. Blockchain payments provider Lightspark, which has built software for the more complex problem of facilitating dollar payments over the Bitcoin Lightning Network, charges a flat 15 bp fee for its developer SDKs. Even in this worst-case scenario, the cost of payment acceptance is still an order of magnitude cheaper than Visa debit. 

Public, permissionless blockchains allow anyone to join a payments network instantly, which may lead to the emergence of a competitive network. One of the most impressive features of public blockchains is the extent to which the community has aligned around common standards, such as the ERC-20 token standard. It may be the case that public blockchains innately incentivize widespread adoption of standards due to composability: when a single protocol uses one standard, other products adopt the same underlying standards in order to build on top of the successful protocol.

Because of this widespread alignment around standards, as well as blockchains’ permissionless character, it’s very easy for a new participant to join the network and accept payments with low friction. Additionally, if a new participant joins the network for any reason — to buy an NFT, to use an on-chain financial market, to play a game, etc. — they will have also joined the payments network. These two characteristics, among others, make it more likely that the next network to rival Visa’s will come from a decentralized, public infrastructure rather than from a proprietary project built by a single company such as Plaid, JP Morgan, Cash App, or PayPal.

Crypto’s inherent properties weaken the value proposition of existing Visa investments. Public blockchains are agnostic to national borders, and they generally settle very quickly. Visa has made significant investments in cross-border payments and value-added services for real-time payments, but the investments may not achieve their intended return in a world of blockchain-based payments.

Visa’s strategic future

I think Visa has incredible opportunities to sell new products, increase margins, and maintain its monopoly in consumer payments. In a world of ubiquitous adoption of public blockchains, Visa’s legacy network would still be a tremendous asset. Visa’s ability to align consumers and merchants around a common standard would allow it to offer products for consumer payments specifically. The requirements and technical changes that Visa could implement, such as requiring the return of funds in cases of fraud, would not be possible to implement into the base blockchains that are focused on enabling many diverse applications. Additionally, Visa’s legacy business and unique position would allow it to compile the requisite data to create powerful anti-fraud software.

The main obstacle to Visa’s success would be managing incumbent business relationships during the transition to a blockchain-based strategy. If it became clear that Visa intended to accelerate the adoption of a new, non-bank payment rail, bank partners would likely switch their card issuance to a competitor. Therefore, Visa would need to plan carefully and gather the necessary resolve at every level of the company to execute the transition quickly and effectively.

Currently, Visa’s crypto work breaks down into three buckets: facilitating “crypto payments” via traditional rails, stablecoin payouts for merchants, and publishing research. The first product is not that innovative. It condenses the process of selling crypto for dollars, withdrawing dollars from an account, and spending the dollars into a single card transaction. However, instead of facilitating direct value transfer on native blockchain rails, it still routes through the existing, lethargic, bank-dominated system, essentially getting rid of all innovation. The second product is useful because it takes advantage of cryptoassets’ border-agnosticism to facilitate global payouts. However, it doesn’t represent a significant cost-savings for merchants on their biggest pain point, which is consumer payments acceptance, and its potential utility may be limited to a small set of customer situations. Finally, Visa’s research is serious and important. In my opinion, it’s the Visa activity that most rigorously engages with public blockchain technology. Recent articles on account abstraction combine Visa’s consumer expertise with a sincere and rigorous exploration of new technical primitives that is unique amongst traditional financial institutions.

To lay the groundwork for a full bet on blockchain-based payments, Visa should continue to build out its research function. It should increase the size of the division significantly with a focus on crypto-native staff and begin beta development of crypto payments facilitation. To the extent that Visa does publish research or discuss the efforts publicly, it should keep discussion highly technical, as it has in its account abstraction articles so far. Keeping discussion highly technical makes it less likely that incumbent financial institutions and regulators will understand Visa’s commitment and vision for blockchain payments. Even if an employee or two at a big bank grok what Visa is doing, it will be hard for those people to communicate to their colleagues, much less to their executives, what the significance is of Visa building a paymaster smart contract to implement ERC-4337.

Visa could also consider incubating or funding a nominally separate corporate entity to begin building the technology and partnerships necessary to facilitate consumer crypto payments. For example, they could research and build the technical features required to add NFC crypto payments to payment cards (RFID chips, consumer app to configure asset and blockchain, cryptographic functions, fraud checks, consumer and merchant UX, etc.). By keeping the development ostensibly separate, Visa maintains plausible deniability that they are trying to disrupt the future revenue of their most important partners.

Visa will also need to develop buy-in from its executive leadership, Board of Directors, and key shareholders. CEO Ryan McInerney will need the strongest conviction. From the outside, he appears to be a strong candidate to pull off a radical business transformation. Among other things, he: has spent his entire career in payments, could preside over corporate transformation based on his beginning experience at McKinsey, has ten years of experience at Visa, is young and early enough in expected CEO tenure to begin a 10-year project, and has delivered strong stock performance since he became CEO in February 2023. The latter two parties, though, likely require a multi-year education and socialization campaign where the CEO slowly introduces blockchain concepts and communicates why he thinks it can be a boon for future growth.

When consumers and merchants are finally ready to adopt blockchain payments (they are definitely not right now; this probably takes 3-5 years in the most optimistic timeline), Visa can consolidate all efforts and execute its strategic plan quickly and efficiently. The strategy would assume that banks will switch networks within a year or two and stock price will take a beating; therefore, it is imperative to quickly develop new business and demonstrate growth. It will take time to reeducate investors and attract a new set of growth/tech shareholders, but if Visa can communicate its vision and demonstrate that it is on a path to succeed, it should reprice effectively. From there, continued execution can help Visa succeed in a disrupted world and remain one of the greatest, if not the single best, payments companies in the world.

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These are my independent thoughts and do not necessarily represent the views of my employer. Thank you to Tommy Hadeed for comments.

Endnotes

1 Proprietary calculation because Visa does not clearly explain the source of its revenues. Based on its 3Q 2023 income statement, this figure is the sum of “services revenue,” “data processing,” and “international transaction revenues” as a proportion of gross revenue, which is net revenue plus “client incentives.”

2 Data from the Federal Reserve Board’s Regulation II report, calendar year 2019. Assumes average transaction size of $43.49.

3 Fees on current L2s are too expensive for pure payment transactions, due in part to the chains’ commitment to Turing-completeness. By optimizing the characteristics of the chain for payments, such as but not limited to restraining the scope of possible compute executable on the chain, a developer could build a chain optimized for payments that has high throughput, low fees, fast settlement, and low hardware validator/sequencer requirements. This is what the Lightning Network has done, which additionally optimizes for med-high trust, low-value payments due to its channel design that requires liquidity provision.