The Challenges of Changing the Credit Card System

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The credit card system is difficult to change without government intervention because consumers benefiting from rewards oppose change. Merchants pay fees that eventually return as rewards to consumers, making consumers advocates of the current system. Retailers struggle to create a better system as consumers are reluctant to provide bank account information without substantial incentives, which are usually more expensive than existing interchange fees. Changing consumer behavior away from credit cards requires non-economic approaches and long-term benefits. Despite efforts by retailers like Walmart and Target, it is challenging to incentivize all parties to change behavior. The current credit card system can be viewed as a scheme to use retailers' money to bribe American consumers. Wealthy consumers with rewards cards benefit the most, leading to a scenario where non-rewards users ultimately bear inflated prices. Research by the Federal Reserve Bank of Boston shows that households using cash pay an average of $149 in inflated prices annually due to interchange fees affecting all prices.

To paraphrase Visa founder Dee Hock, how many of you know Visa? Great, all of you. Now, how many of you know how it started? Or, for that matter, who started it? Who runs and governs it? Where is it headquartered? What’s its business model?

For the 11th largest market cap company in the world, Visa’s history and strategy is almost shockingly unknown. A huge portion of the world’s population uses their products on a daily basis (you might say Visa is… everywhere people want to be), but very few know the amazing story behind how that came to be. Or why Visa continues to be one of the most incredible and incredibly durable business franchises of all-time. (50%+ net income margins!! On $30B of revenue!) Today we do our part to change that. Tune in for one heck of a journey.

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‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.