Latest / The Curve / RTC73: Plastic Fantastic: How Visa, Mastercard & Amex are doing on the stock market.

Transcript

RTC73: Plastic Fantastic: How Visa, Mastercard & Amex are doing on the stock market. · The Curve

0:00
Welcome to Raising the Curve, a podcast designed to teach you everything you need to know
0:05
to be better with your money.
0:07
And the wise words of Amy Schumer were slipping carrots into the brownie recipe.
0:12
I don't really get the saying.
0:14
It's kind of like eating vegetables that actually taste good.
0:17
You know, I like to stare at it when you're on the script.
0:20
That's basically like saying, investing in finance can be boring but it totally doesn't
0:26
need to be.
0:27
Oh, okay, okay.
0:29
So we're making it fun by putting the carrot, okay, the vegetables are good for you.
0:34
It's the brownie recipe.
0:35
Okay, we got there.
0:36
We got there.
0:37
Okay.
0:38
Well, you've really got a finance mate.
0:39
Yeah.
0:40
One of us has to.
0:41
This is a joke.
0:42
Okay.
0:43
Come and learn alongside me from Vick Harris, ex-fun manager where I'm going to ask all the
0:47
questions that you wish you could and I'm going to be eating all the brownie you wish
0:50
you could.
0:51
No, that's so not the joke, Vick.
0:54
Okay, just come and talk and learn and laugh with us because together we really can raise
0:58
the curve.
1:01
So so.
1:02
Yes.
1:03
Do you have a credit card?
1:04
I don't.
1:05
I've got.
1:06
I've got a visa debt.
1:07
I remember back in the day when you used to have a cash flow card that had no numbers
1:12
on it.
1:13
And so if you wanted to shop online, it's probably before your time.
1:16
Yeah.
1:17
But since I remember this, you had to, you had to have a credit card because it would
1:20
have asked you to put in your number, do remember, and you'd have a cash flow that had
1:24
no, well, like an F-poss, yeah, they had no numbers on it.
1:28
So you couldn't use that.
1:29
So you had to go into debt if you wanted to buy something online and then they bought
1:32
out the debit card and it was like, oh, and I remember my mum being like, what do you
1:35
mean?
1:36
You don't have a credit card.
1:37
I was like, well, I don't need one.
1:38
I've got my debit.
1:39
And she was so confused because she'd never thought like that.
1:42
How bad is that though?
1:43
I know.
1:44
The only option you could do was to go into debt by getting a credit card.
1:49
Yeah.
1:50
That seems wild.
1:51
And especially now when so much is purchased online, I think it's probably a combination of
1:57
kind of two trends of online shopping and then they were like, okay, we need to make
2:01
our debit cards by online transactions.
2:04
I've never had a credit card where I went into debt just because I don't trust myself.
2:11
I'm quite scared of the idea of forgetting to pay.
2:15
I mean, I'm not great with my organisation when it comes to finances and money.
2:20
So I've just never got one.
2:21
Yeah.
2:22
And a lot of people don't like them.
2:24
They don't like the debt and they totally get that.
2:27
But a lot of people can use them really effectively in terms of getting spending, getting
2:31
the rewards.
2:32
And it's okay to have a credit card as long as you use it responsibly and you pay it off
2:37
because it's when you don't pay it off, that's when you get charged fees and that's what
2:42
hurts.
2:43
Yeah.
2:44
You're good with debt and you're good at paying it back, definitely do it, but majority
2:49
of us are not.
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So it's easier to not even have one.
2:52
Yeah, but I must say in terms of racking up awards for travel or that kind of excitement.
2:58
A lot of things.
2:59
Cute.
3:00
Is that what it's called?
3:01
Rewards.
3:02
Like a participation certificate?
3:03
Oh my god.
3:04
I have a speech.
3:05
My god.
3:06
Yeah, like when we were away, I remember you paying for a big dinner that everyone had
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been at.
3:11
I'll get it.
3:12
I'll get it on my MX.
3:13
No, no.
3:14
No, we'll split it.
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I was like, no, no, it's fine.
3:16
It's fine.
3:17
We'll split it.
3:18
I know.
3:19
I think I would get quite excited by the idea of racking up and knowing what that's going
3:25
towards.
3:26
It's almost like, I'm quite good with goals or very goal-oriented or having like, what's
3:31
the word I'm looking for?
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It's like incentive to do something.
3:34
Yeah.
3:35
Okay.
3:36
Well, today's episode we're going to talk about the payments industry.
3:40
We're going to talk about visa, mascot and American Express.
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How they're the same, how they're different, and yeah, I'm excited.
3:46
Okay.
3:47
But before we start, because we're talking about stocks, massive, massive caveat, oh, this
3:54
is not advice.
3:55
This is not advice.
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Please do not see me to jail.
3:57
Yeah, yeah, yeah.
3:58
This is purely education, just giving you the facts so you can make a decision yourself.
4:03
Yeah.
4:04
I mean, these companies could shit themselves for, you know?
4:06
Yeah.
4:07
Yeah.
4:08
And that's the thing, it's like the idea of knowing and making a decision independently.
4:16
So like having the facts, understanding and then making a choice, there's that self-response
4:20
ability of I chose to do this.
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Totally.
4:23
And I know if you'd asked me two years ago, I would have just said, can you just take my
4:25
money and do it?
4:26
Yeah.
4:27
And then I'd be like, oh, Victoria, this has gone down.
4:30
It's all your fault.
4:31
But now I know I have the power to make that decision and therefore I hold myself accountable
4:35
depending on whether it goes up or down.
4:37
And we're just trying to create a awareness of different companies that are out there
4:40
to invest in.
4:41
Because some will resonate with some people, some won't.
4:43
Some of you probably already hung up and not listening to this because you're like,
4:46
I mean, it's boring.
4:48
But, you know, so I think it's, yeah, just creating awareness of different companies that
4:53
are out there and how they operate and stuff, which is what I love doing.
4:57
Before we get started, I'm just going to like set the scene with the industry.
5:01
So we have always talked about when you're picking an investment, it's really good to try
5:07
and find one that's in a rising tide.
5:12
Structural growth industries, which means an industry that is growing as a collector.
5:18
Yes.
5:19
So a trend, something that it falls into and naturally is going to be increasing in growth and awareness
5:27
and people wanting to use it or spend money or whatever.
5:30
So an example of something not in that would be, don't say a newspaper.
5:35
Maybe like the oil industry, yes, it's done well recently, but over the long term,
5:42
more electric vehicles, less people relying on oil, that kind of thing is kind of a,
5:46
right?
5:47
Not the best example.
5:48
That's a good example.
5:49
Yeah.
5:50
New paper print industry, you know, everything's going digital, that's probably one of them.
5:54
But yeah, structural growth industries are when there's kind of technological change,
5:59
demographic change, you know, all those kind of things.
6:02
So payments is definitely one of them.
6:04
So the industry is expected to grow about 20% per year and that's all around the increase
6:09
in people being online, so we were talking about online shopping, the increased number
6:12
of smartphones, so you know, having pretty much a computer in your hand where you can spend
6:16
money, artificial intelligence as well, e-commerce, all of that kind of plays into this digital
6:21
payments industry, you're growing and growing, did you know there's like 470 billion credit
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current transactions per year across the world?
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How many?
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470 billion.
6:35
That's crazy.
6:36
Yeah.
6:37
It's a lot.
6:38
Yeah.
6:39
China actually accounts for roughly half of global retail e-commerce right now, so that
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means that they're kind of contributing to about half of that digital spend.
6:47
Like, it's crazy.
6:48
Half of the digital spend is coming out of China.
6:51
Out of China.
6:52
Yeah.
6:53
So and this was all accelerated by COVID and we've seen so many charts where it's like online
6:57
for those who can't see, but my fingers going up and up and it's a really good description.
7:03
Online payments or digital payments has kind of tracked up steadily over time and then
7:08
COVID hit and you just said this line on this graph like shoot up because obviously everyone's
7:13
stuck at home, they need to spend and they need to buy things so you know, even like my
7:18
parents were buying stuff online and they're so averse to buying things online, you're buying
7:23
groceries.
7:24
And some of that's going to stick, some of those people who never bought online before
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are now going to be buying a lot more online, it's so convenient.
7:32
The industry is growing 20% per year, which like you were saying, rising tide.
7:38
So any company that's operating the payments industry is growing at around 20% per year.
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Just surfing the top of that wave.
7:45
Surfing the top of that wave, unless they're doing really badly that we're drowning at
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the bottom of the wave.
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Operating an industry that's growing really strongly, it's hard to screw up.
7:55
It's harder to screw up.
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So you're kind of, that's your base case, if that makes sense.
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And so there's still about 60% of all transactions globally that are with cash.
8:05
So a lot of people will know that we'll know this space well, though we're spending online,
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they'll be using their visa, their mask card, their American Express.
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So we always talk about also investing in what you know.
8:16
That never made sense to me at the very start.
8:19
And I was always just like, oh, it's flying over my head again and again and again.
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But I have been talking about this quite a lot recently to anyone that will listen.
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And all it means is that investing can feel kind of like, oh, I don't know if I want to invest it scary.
8:35
But if you understand a company and what they do, that takes up such a massive part
8:40
of the panicky stuff.
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Because there's research processes.
8:43
Yeah, like if you love couches and you are very passionate about couches,
8:47
and you know the ones that can sell the best, or you work in a couch making, what do you
8:53
have at me?
8:54
And it's just, it's basically the idea that you're taking out a massive portion of that,
8:58
like, I don't understand, because you do, because you understand the companies.
9:02
Yeah.
9:03
Because I, this is a really good example is what I think about is if I was investing in
9:07
and say the golf industry, I know sweet effort about what even makes a successful golf
9:17
industry.
9:18
I don't know what that means.
9:19
And it would make your investing time so boring and unfun, because you'd be like, right,
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I have to sit down and know about golf and come, you know where's if you're like, I love
9:27
the beauty industry and I love cool products and I love the idea.
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I buy it all.
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And so I know the ones that work and I see all this, if my friends use, then if you
9:37
notice, everyone's using Lucas Paul Poor, is it a listed company?
9:41
Exactly.
9:42
Yeah.
9:43
Or you notice everybody wearing, I don't know, those, what are those Giselle or Gazelle,
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like, Adidas shoes that everyone wears with the three stripes on the side of the
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thumb.
9:52
Yeah.
9:53
Yeah.
9:54
Yeah.
9:55
Yeah.
9:56
It's like just being aware of what you and your friends use is such a good starting point
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from an investing lens.
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And for me, I use my visa all the time.
10:04
Actually, too much, way too much sometimes.
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But anyway, so yeah, this is an industry that I know very well.
10:12
Well, I make up one and a billion of those transactions close to it, close to it.
10:18
Anyway, so I'm just going to give a bit of background because the payments landscape
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was pretty complex.
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Like in terms of when you swipe your card, what goes on in the background is quite incredible.
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Is it?
10:30
Yeah.
10:31
I mean, this is something that you think is amazing.
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It's not.
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I know, as soon as I see that, I was like, was this going to be another case or something
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that I find really fascinating and so I've never had financial time to just, oh, if
10:42
that's it, I can't wait to be on the tube to read the financial time.
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I'm such a geek.
10:47
Oh, my gosh.
10:48
I'm such a geek.
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Anyway, tell me.
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I'll be up in a minute.
10:51
Anyway.
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So when you swipe your card, say you're buying an orange juice and you swipe your card,
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you are actually sitting off this like incredibly fast series of events.
11:03
Like, and I'm talking like micro seconds of events.
11:07
So firstly, when you purchase your orange juice, so say you purchase that from marks and
11:13
sponsors because we're in the UK.
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Oh, I'd love marks and sponsors in case you didn't know we're in the UK.
11:18
Where are you at?
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Or Saint Breeze or Tesco.
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You know, anywhere.
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Are you going to be familiar with this if you're not in the UK?
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God, we're dicks.
11:30
Anyways, so you're purchasing your orange juice from marks and sponsors and you swipe
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your debit or your credit card through that little, it's called a PLB system.
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You swipe it through that and your information is sent to marks and sponsors kind of payment
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process at behind the scenes, who then is passing that card information and the transaction
11:49
amount onto their bank.
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So it's going to the company and then to their to their bank.
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And then that bank, let's say it's Barclays.
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So I want to think of it.
12:02
So local, HBSQ or something, HBC, yeah, HBCQ.
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So then that bank, so Barclays would then capture that transaction and forward that information
12:14
to my credit card network or my debit card network.
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So if I'm a visa customer, they're forwarding that to visa.
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If I was Mastercard, they're forwarding that to Mastercard.
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And Mastercard or visa routes that transaction to my bank.
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So you've gone through three different places, meaning while you're standing there ready
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to drink your orange juice, you know, this is happening, it's a kind of thing, yeah.
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Then that transaction is approved with a client, depending on the availability of funds,
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probably often declined for me, could be declined.
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And that's what we call the authorization process.
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And then ASB was my bank response back to the credit card and it all goes all the way back
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to be like, yes, Sophie can purchase that orange juice.
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And then it happens all over again pretty much with the actual funds.
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So this is just the authorization process saying, yep, Sophie can buy that orange juice
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and she's got enough money in her bank account, then you walk away with your orange juice
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and the funds make their way through.
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The funds and all the settlement it goes on and that's pretty much very similar process.
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But it's crazy to think instantaneously.
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So when you're waiting there kind of like tapping your foot, being like a hurry up,
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you know, it is going through a whole lot of different processes.
13:33
Yeah, that is cool.
13:34
And the key thing is why visa and Mastercard have got so big and so dominant is that they're
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the ones that are effectively running that network.
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So without them, no one is talking to each other and so there's, it's on them to make
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sure that they don't say, yep, she's got enough money, she's sweet off you go.
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And then whoops, she doesn't even exist orange juice.
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She has no bank account, then we actually can't do the funds.
14:02
So they're kind of the security layer as well as kind of the, I don't know, the gluator
14:09
or some kind of glue that keeps everything together.
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So they're very, very vital in this whole payments process globally.
14:17
Now if we go into like their market share, so visas actually got 60% market share.
14:23
So it's bigger than Mastercard.
14:25
Yeah, and Mastercard has got 25%.
14:27
So it's a lot smaller.
14:28
Does that mean is it's similar to betting where like they're the underdogs?
14:31
So if you were to invest in Mastercard, they have more room for growth.
14:34
Yeah, that's good that you say that because it is so true.
14:38
These pluses and minuses are investing in different companies whether they're,
14:42
if they're the dominant company and they're going to continue to dominate or do you invest in
14:48
the underdog because they've got much more to gain.
14:50
Whereas if you're already investing in the leader and they've already got so much
14:55
market share, they could lose that.
14:57
If you're already up at the top, there's only one way and that's down.
15:01
Whereas if you're at the bottom, there's only one way and that's up.
15:04
So it's kind of, I remember deciding, oh, do you invest in the one that's
15:08
that's killing it or the one that might kill it?
15:12
And it's hard.
15:13
It's like, but yeah, so that's why you could diversify.
15:16
It's in both if you were really attracted to the payments industry.
15:19
Attracted.
15:20
I'm so attracted to Mastercard.
15:24
I'm so attracted to the visa company.
15:26
So funny because that's just like terms that we use like really attractive markets.
15:29
And they really pin a trading the market.
15:31
You know, you're honestly absolutely taking the first.
15:35
No, they're like the market penetration of this bit.
15:37
No, it's not.
15:38
Oh, I promise you.
15:40
And they please, if anyone's listening that's in finance, please.
15:43
The market penetration.
15:45
The market penetration.
15:46
What is the penetration market with the finance industry?
15:50
And the duration of.
15:51
No, no, I, I want to do you used to say this sort of shit meeting.
15:56
You feel like it's penetrating the market.
15:57
Because it was on your markup.
15:59
No, I mean, I'd probably be like, but everyone around you
16:02
is like stone-faced, but like, yes, okay, we'll penetrate the market.
16:05
So you, you don't want to be the loser that's like young in a mature,
16:09
laughing at penetration.
16:10
That's ridiculous.
16:11
And if anything screams the finance industry is full of men,
16:15
it's penetration duration within the fucking market.
16:19
I know, it's so true.
16:20
Oh, gosh, but yeah, outrageous.
16:24
You know, you've got to bring some fun creative sexual terms into the finance
16:29
industry, you know?
16:29
So, so visor is penetrating the market more than MasterCard?
16:33
Yes, it's penetrated.
16:35
I can tell you what, oh, it's just so weird.
16:39
So weird.
16:40
Yes, but it has penetrated the market.
16:43
I hope we're so mature.
16:45
So Visa card, it's a bigger dick than MasterCard.
16:47
Yeah, Visa.
16:48
Visa card?
16:49
Oh, shit.
16:50
Visa.
16:51
Yeah, Visa has real big dick energy.
16:54
Okay, yeah, MasterCard not so much.
16:58
Could be a show and not a grower.
16:59
True.
17:01
I don't know how we go over
17:02
I'm talking about payments companies.
17:05
To payments.
17:05
To payments.
17:06
Oh, gosh, anyway.
17:08
When you, so how do, how do these payments companies make money?
17:11
Well, it's all in the fee that you just clipping the ticket at those.
17:15
Yeah, clipping the ticket.
17:15
So the more of that process that you own,
17:19
the more fees that you can clip.
17:21
Oh, yeah, yeah.
17:22
The average fee on a credit card is 2.3%
17:26
and 65% of that goes to the credit card company.
17:31
So the majority of that fee is going to the credit card company.
17:35
So Visa and MasterCard are in a huge advantage in terms of their position.
17:41
So how many other companies are there, though?
17:42
Well, that's 85% market share and then you've got Amix, which is 10.
17:46
So Visa dominates.
17:49
But the thing is Visa could be like,
17:50
you know what, we're going to increase that from 2.3 to 2.5.
17:54
And there's nothing you can do about it.
17:55
Because you can't go anywhere else.
17:57
So having that sticky customer and almost, you know,
18:02
being that vital part of how businesses operate is so key.
18:07
So for every $100 you spend, $1.50 goes to the credit card company.
18:12
Oh, that's huge.
18:13
Yeah.
18:14
So I remember you said so annoyed when I would go to pay something like,
18:18
sorry, we don't accept paywave or we don't accept credit cards.
18:21
So we don't, you know, it's just like, charge me more.
18:23
I don't care.
18:24
I don't want to have to.
18:25
You know, it's like, but then I can kind of see it.
18:27
They've got to pay so much away.
18:30
But are you see really frustrated when they charge an additional fee?
18:33
But that's the revenue model.
18:34
So I'm also just incredibly lazy.
18:37
Like if someone's like, you can insert it and you save like 30 cents,
18:41
I'm like, oh, just tap it.
18:42
Which is probably not the best one.
18:44
I know, especially if you're tapping away at all odds up.
18:47
Yeah, yeah.
18:48
Even like I find here in the UK, so many places take cash.
18:53
I don't notice that.
18:55
Oh, I've got to pay with the card.
18:56
And then it's like, oh, get out the machine.
18:58
It's like, sorry, am I the first person to know that paid with paid with cash?
19:03
It's quite weird.
19:04
Anyway, let's focus on just master card for now.
19:08
So I've actually been to the master card heat office.
19:11
I'm going to go to cool, babe.
19:14
Me.
19:15
Is it cool?
19:15
It's fucking cool.
19:16
Is it?
19:17
It's huge.
19:18
Like we arrived at Armenian Bay.
19:20
It's just above New York City.
19:22
We arrived at reception.
19:24
And it was like this huge campus.
19:26
Like I'm talking massive.
19:28
It looked like university.
19:29
Anyway, this lady comes out and she's like, oh, Victoria.
19:32
And I was like, yeah, she's like, come with me.
19:34
Grab a scooter.
19:35
I was like, sorry.
19:38
She jobs on the scooter and starts scooting.
19:41
And I was like, wow, I felt like I was at Google or something.
19:44
You know, like you're just like, wow, they've got scooters to get around.
19:46
Because it's such a large campus.
19:48
I take back all of my snobby master card is not cool.
19:53
That's amazing.
19:54
Yeah, it was quite fun.
19:56
So American as well.
19:57
So American, I know.
19:58
Anyway, so master card has over 1.5 billion
20:03
cards globally in circulation.
20:05
So 1.5 billion people have a master card, which is crazy.
20:10
And it processes over 3,500 transactions a second.
20:15
A second.
20:16
Imagine if the system went down.
20:18
Like that's, you'd be so annoyed.
20:20
It's crazy.
20:21
A lot of annoyed people.
20:22
Anyway.
20:23
And the revenue was $22 billion last year, which is nuts.
20:28
Yes.
20:29
And they're one of the top payments companies in these.
20:31
And they've paid 500.
20:32
So they're pretty, pretty big deal.
20:34
Anyway, their share price has delivered 100% over the last five years.
20:38
Oh, wow.
20:39
Yeah.
20:39
So they have done fantastically well.
20:42
A master card, 100%.
20:44
Yeah, master card and visa have actually been really good investments.
20:46
So if I put $100 in a year, I could have made 200.
20:50
Five years.
20:51
Yeah.
20:51
Well, yeah.
20:53
Oh, sorry, over 100, 100% of the last five years.
20:56
Oh, okay.
20:58
Which is still quite amazing.
21:00
So is that about 20% here?
21:02
Roughly, yeah.
21:02
You want to slow and steady grow.
21:05
Like these companies are really good in terms of their defensiveness.
21:09
You know, we're always going to have to use their business and their network.
21:13
So in terms of defensibility,
21:15
they're actually really, really good companies.
21:17
A less crypto or something takes off.
21:20
But I feel like you've still got 60% of the world that is using cash.
21:25
So it's kind of like there's still this massive way of coming.
21:30
Even if a people that need to shift to card.
21:32
Yeah, they need to shift from cash.
21:34
And even if half of that went to crypto, still a huge difference.
21:39
So many people that will be needing to use card.
21:43
So these are on the other hand.
21:45
So these were actually founded in the 1960s and
21:50
succeeded in over 150 countries.
21:53
And the interesting thing with these credit card companies is like
21:57
then the credit cards aren't actually issued by these are a master card.
22:02
You want to mean like you don't go to a visa and a master card shop to get your visa
22:05
You go to the bank and then it's issued on their behalf.
22:09
Yeah, it's so I've never thought of that before.
22:12
The great thing about this is that they're very high operating margin businesses.
22:16
And what I mean by that is I mean for every additional transaction,
22:20
there's no additional cost to them.
22:23
So it's kind of like without business.
22:25
Every additional listed on the podcast doesn't cost us anymore.
22:29
Yeah, you know, so we can scale and we can grow.
22:32
And it's the same with visa and master card.
22:34
We're in this podcast to all your friends so we can scale and grow.
22:39
Whereas if you think about like Walmart or any retail store,
22:43
the more sales means the more stock, the more space you have to have to sell.
22:48
Oh my goodness.
22:48
So you've got to have those additional costs if you want to keep growing.
22:51
So this is why over 70% of visa and master cards revenue go straight to the profit.
23:00
Whereas a Walmart is 4%.
23:02
So every, you know, in terms of their revenue,
23:06
4% to turn them to profit.
23:08
So it's a highly profitable business model.
23:11
And it also means that you can add extra costs in there without having a huge impact on your
23:17
profit. So say they did want to open another network and that, you know, the cost of building that
23:23
out costs them quite a lot.
23:25
And maybe the margin might drop to 50%.
23:28
You know, you still got quite a lot.
23:29
Whereas Walmart, if they had additional costs, they've only got that 4% buffer effectively.
23:35
Right, right.
23:36
So it should be much more careful.
23:37
Yeah, it means if there's an expense blowout or something costs a lot more than they expect,
23:42
they'll be unprofitable.
23:43
So it's, yeah, it's kind of just a, you know, if someone mentions high margin businesses,
23:48
they're often really, really, really good businesses.
23:50
They've generated $30 billion in revenue last year.
23:54
So remember, MasterCard was $22 billion, Visa's $30 billion,
23:59
which is surprising considering how much bigger they are.
24:04
I'm sorry.
24:04
So remember, I forgot.
24:06
No, no, so remember I see that Visa has 60% market share.
24:09
Yeah.
24:10
MasterCard, 25%, yes.
24:13
There's not much difference in their revenue.
24:16
What do you mean, sorry?
24:16
So how much is Visa making again?
24:18
So Visa's revenue's $30 billion.
24:21
And what was MasterCard?
24:23
$22 billion.
24:24
Wow, why is that?
24:25
So the reason is that Visa has a higher portion of international transactions,
24:30
or what we call cross-border e-commerce.
24:32
During COVID, that was obviously diminished,
24:34
because nobody was traveling overseas and spending overseas.
24:36
So basically, if travel starts booming and being back to normal,
24:40
Visa will benefit from that.
24:42
Yeah, because they've got a higher proportion to that.
24:44
Does that mean, and is there share price down at the moment,
24:47
comparatively, to what it is normally when travel's really booming?
24:52
It was, but remember, the market is forward-looking.
24:55
So people are like, you know what?
24:58
It's going to come back, let's buy Visa at MasterCard.
25:01
On the forward-looking thing, can we just pause on that for a second,
25:04
because I never really used to understand this either.
25:06
Basically, what you mean is people buy or sell shares based on what they think is going to happen.
25:11
In the future.
25:12
In the future, not what's currently happening.
25:13
So because COVID is almost a thing of the past touch word,
25:17
people know travel is going to make a comeback.
25:19
And therefore, even though people aren't necessarily spending online like they used to,
25:24
now they know that that's coming back.
25:27
And therefore, Visa's share price is actually doing okay.
25:29
It's kind of like in an episode we spoke about,
25:32
the US stock market is now no longer in a beer market.
25:37
And it's rebounded really strongly this first half of 2023.
25:43
Even though, if you look around you,
25:45
you know, there's signs that we're heading into a recession in New Zealand.
25:48
You know, we've still got really high inflation.
25:50
We've still got really high interest rates.
25:51
And you're thinking, how is the stock market done so well when we're still battling away?
25:56
It's battling away, and it's because little things like
25:59
inflation is peaked and it's now longer not going to keep going up.
26:03
That's a really positive sign.
26:04
And therefore, people are like, you know what?
26:07
There's light at the end of the tunnel.
26:08
I'm going to buy US stocks.
26:09
So it's kind of the stock market always moves a hit of kind of what's going on in the world.
26:14
Yeah, yeah.
26:16
And anyway, lastly, on American Express.
26:19
So how does this fit in?
26:20
So they had 52 million cards in 2000.
26:26
And now they've got 140 million cards in 2022.
26:30
So they added about 24 million cards since COVID.
26:34
Which is huge.
26:36
If you look at it with that on a graph,
26:38
it's like steady bumping along and then again,
26:41
just takes off as people were buying online and wanting rewards and all that.
26:46
So they were getting American Express cards.
26:48
But the key thing, and it's really interesting,
26:50
because American Express is positioned itself to be this status symbol,
26:56
you know, a real premium.
26:59
I was going to say, I almost want to get an index.
27:00
Yeah, it sounds so cool.
27:02
It's like globe trotters with travel benefits.
27:04
You get access to airport lounges.
27:06
It's got this kind of premium feel.
27:08
Premium feel.
27:09
And it's quite good because you've got the visas and the mass cards of the world,
27:12
which is volume.
27:13
Let's get the cards out to as many people as possible and get, you know,
27:16
lots of transactions.
27:17
And then American Express is kind of being like,
27:19
how do we position ourselves differently?
27:22
Let's go for the more premium spender that's buying big ticket things,
27:26
that's going on really expensive holidays.
27:28
And, you know, make it almost, yeah, status symbol of having an American Express.
27:33
Yeah, because I know you've gotten an American Express.
27:35
And when if you're like, I'll put it on their index.
27:37
I'm like, I want to put it on my index.
27:41
I went, yeah, I didn't airport the other day and I went and I was like,
27:44
hi, I'm an American Express member.
27:45
Can I get access to the lounge?
27:47
They were like, no, sorry.
27:48
I was like, okay.
27:51
So embarrassing.
27:52
Oh, embarrassing.
27:53
No, so they used to.
27:54
Used to be able to get access.
27:55
I feel secondhand embarrassing.
27:57
I know, yeah.
27:58
So, and I was like, what do you mean?
28:00
But no, because you used to be able to, there was a whole,
28:03
they kind of, I guess, reduced the number of lounges
28:05
that you could get into during COVID.
28:07
And so I've been to that lounge for and so I was like,
28:09
oh, perfect.
28:10
And then they were like, no, sorry, we've changed.
28:12
Anyway, and I was like, okay, no, that's cool.
28:14
And then they said to walk occasionally back out.
28:16
And I was like, oh, I'm just going to sit at present,
28:18
have a, have a cell.
28:19
That's like when I, when I was traveling over to the UK with my granny,
28:23
we were on the same flight.
28:24
She was flying business class and I was in an economy.
28:27
And just because I was interested, I went up to the business counter
28:30
and I was like, hi, I'm just wondering if there's any space in business.
28:33
I had no intention of flying a ticket.
28:36
It's 5,000.
28:38
And I was like, okay, I just wanted to go up to see how people
28:43
would respond to what they would say.
28:45
I mean, I definitely wasn't even dressed the part.
28:46
So they probably wouldn't let me in.
28:48
But it was just that feeling.
28:50
I didn't feel embarrassed walking away
28:51
because they were like, it's full action.
28:53
I was like, okay, no worries.
28:54
I mean, you've got to try.
28:55
Yeah.
28:56
It's like when you used to be drunk and like,
28:57
walk up to the front of a queue in clubs,
29:00
my friends say, inside, inside, can I come in?
29:05
They're like, no, to the back and then you do that.
29:06
The most embarrassing is the walk back to the back of the queue
29:09
and everyone's looking at you like you idiot.
29:11
Can we talk about what you just said before we recorded this podcast
29:14
about getting refused to go into a club and then, oh yes,
29:18
yeah, I've actually been refused entry to a few clubs.
29:23
But one was insidient and me and my friends tried to get into a club
29:30
and we were quite drunk.
29:31
Anyway, they were like, absolutely not.
29:34
See you later.
29:34
So we're like, dammit, we're friends inside.
29:36
And I was like, I have an idea.
29:39
And I was like, let's change clothes.
29:41
And so she was like, oh my god, great idea.
29:44
Like, we have the completely different fashion sense
29:47
and she's blonde, I'm brilliant.
29:48
Anyway, what were the outfits?
29:50
Was it like short?
29:51
Yeah, mine was like probably short and tight.
29:53
And hers was long skirt.
29:57
Bellowy T-shirt.
29:57
Anyway, we went round to the side of this bar
30:02
like in an alleyway, like quite scary,
30:05
just got completely stripped off, like, completely naked.
30:09
And people walking past and we were just like, dollar.
30:11
Anyway, put out, put each other's clothes on.
30:14
I tied my hair up and joined the queue.
30:17
And we got to the front and the guy looked at us like,
30:20
I'm sure, but I'm not sure.
30:22
You are? And it was like, there was at my moment
30:25
I'm like, shit, we've been busted.
30:27
And then, he let us in.
30:28
And it was kind of looking around,
30:30
like, where did those two girls go that I...
30:33
Oh my god.
30:33
Yeah, and then we just ran for it.
30:34
And then what was the time in between getting changed?
30:37
Literally probably five minutes.
30:39
Oh, yeah.
30:40
Yeah, it was.
30:40
Good from you.
30:41
I can never imagine you doing that now.
30:43
No, I know.
30:44
Imagine you're like, let's swap clothes.
30:45
You'd be like, no.
30:46
Absolutely, God.
30:47
I'm not wearing that stuff.
30:48
I'd be like, no, we didn't get into the bar.
30:49
We'll just go home.
30:50
Yeah.
30:51
I wouldn't say that either.
30:52
Brian, let's go somewhere else.
30:54
Party at mine.
30:56
Anyway, back to payment.
30:58
Just to finish on American Express,
31:01
it's really done well in terms of positioning itself
31:03
for a more wealthy customer.
31:06
And with that also comes from the protection
31:10
in terms of if we head into recession,
31:13
typically those wealthier customers are less impacted.
31:16
And they're still going to spend.
31:17
So that kind of gives American Express
31:20
that kind of competitive mode.
31:21
But 60% of all new cards sign up
31:26
with American Express in this last quarter
31:28
were Gen Z, your millennials.
31:30
So they're really targeting that Gen Z, millennial.
31:34
And I think there is that aspirational,
31:37
I've got an American Express totally.
31:39
Yeah, but it's also like everyone just has to make sure
31:42
that they pay back their credit cards
31:44
because American Express,
31:46
because it's targeting that wealthier customer,
31:48
has not only higher fees for you and me
31:51
in terms of what it charges to get a card.
31:54
It also has higher fees in terms of if you don't pay back.
31:58
And also it charges the shops
32:01
from what they call the merchants, a higher fee.
32:03
And that's why it's not really accepted in a lot of places
32:05
because it's not worth it.
32:07
If you've got a small pool of people with a certain card
32:12
and it costs more for the retailers to accept it,
32:15
you can't like, you know what, it's not worth it.
32:18
Whereas with Visa, 60% market share,
32:22
if a shop didn't accept a Visa,
32:24
that's going to impact its revenue.
32:26
Whereas if a shop doesn't accept American Express,
32:28
probably not going to have a huge impact.
32:29
So why did you get an American Express?
32:31
I got it for the ear points.
32:33
So they do have really good rewards.
32:35
And so I haven't paid for domestic flight in New Zealand
32:39
for as long as I can remember
32:41
because I just get the points on my American Express
32:45
and then it's so worth it.
32:47
So my perspective, I'm like if I could be organized enough
32:50
to make the most of having it, how good is that?
32:52
You'd be saving money.
32:53
And things like I put all my petrol on it
32:55
because every petrol station accepts it,
32:57
my groceries, every supermarket accepts it.
33:01
Yeah, any big tech, I always try.
33:03
And then it's usually like,
33:04
sorry, we don't accept American Express,
33:06
but it's getting less and less in terms of those places
33:08
that don't accept it, which is really, really good.
33:10
It's really good for the rewards.
33:12
And I know so many friends that are like,
33:14
I traveled first class on Emirates
33:16
because I use rewards on my credit cards.
33:19
People get, if you can really game it,
33:22
then you can do really well.
33:23
I mean, I'm not like a huge,
33:25
I don't have like six credit cards
33:27
that I'm trying to get rewards and pay them all off.
33:28
Like that's just too much for me.
33:30
But yeah, it has been really good
33:32
in terms of the rewards that come with it.
33:34
That's what you're saying.
33:34
Yeah.
33:35
So just to summarize in terms of some of the risks
33:39
and downfalls from investing in the likes of Amix,
33:43
American Express is very US focused,
33:45
whereas these are mascot and more global,
33:47
70% of American Express' customers are in the US.
33:51
It's in the name, really, isn't it?
33:53
Oh my God.
33:56
Wow.
33:57
Herald day.
33:58
Herald day.
33:59
Herald day.
34:00
Thank you.
34:00
And then I guess some of the risks
34:01
for the entire industry is that you touched on it for
34:07
cryptocurrencies, innovation.
34:09
There's a lot of digital wallets, cryptocurrencies,
34:13
the industry is moving so fast that yes,
34:15
we could wake up one day and there's something
34:16
that's disrupted the whole industry.
34:18
I feel like cards aren't going to be here forever.
34:20
No, but even that probably might be too much.
34:22
Even Apple Pay.
34:23
You're still using the Visa and Mask Card network.
34:25
Even if you type in your card number
34:28
through Shopify to purchase something,
34:31
that's still using their network.
34:32
It's the physical card probably won't be,
34:34
but the online transaction still goes through the network.
34:38
Which is majority of their revenue
34:40
and business model, right?
34:41
Yeah.
34:42
And then the other risk and downfall,
34:44
that's something we were aware of is that
34:45
Visa and Mask Card, they earn money
34:47
on the frequency of transactions.
34:50
So the more people spend, the more they earn.
34:54
So if we're heading into a recessionary time,
34:56
people are like, you know, I'm going to cut back
34:58
on my spending, I'm not going to buy so much online.
35:01
You know, I'm not going to do so much online shopping,
35:03
then that will impact them.
35:06
One thing I'm just going to finish on, actually,
35:08
which I forgot to mention,
35:10
is that Warren Buffett,
35:12
oh, it's about 20% of American Express.
35:14
He first invested in 1964.
35:18
He doubled his money, he sold the stock,
35:19
and then now he's reinvested.
35:22
And he reinvested in 1994,
35:24
and he still holds it today.
35:26
So when you say invest for the long term,
35:28
we say do it Warren Buffett does as an long term.
35:31
1994, were you born then?
35:33
No.
35:33
Yes, sorry, I'm lost.
35:34
Oh, my God.
35:35
Sorry.
35:36
My math is really no strings.
35:38
So in 1992, 91.
35:39
91.
35:41
So that's nearly 30 years that he's had an investment
35:44
in American Express 4.
35:47
And it's gone up 15 times since then.
35:49
So he's made 15 times his money since then.
35:52
So this is why when you find a good company
35:54
with a strong moat, you know,
35:56
a good margins, good cash, like all of that,
36:01
then, you know, and something that's vital to us
36:04
living our day, then, yeah,
36:07
then that can be a really, really good investment
36:10
if you hold it for the long term.
36:11
So can I Google Warren Buffett's portfolio?
36:14
Yeah, yeah, yeah.
36:15
It's under Berkshire Hathaway,
36:17
which is his company.
36:18
Yeah.
36:19
It's a public company,
36:20
so he has to disclose what they invest in.
36:22
Oh, my God, cool.
36:23
Yeah.
36:24
Oh, yeah.
36:25
I'm going to add that to my studio today.
36:26
Have you invested quickly in any of those three?
36:28
I have invested in Visa.
36:30
Yeah.
36:31
I can't remember if I still do.
36:32
I don't think so.
36:33
But yeah, no, after doing this research, I'm like,
36:36
interesting.
36:37
Interesting.
36:38
Hey, thanks for the ideas we're here,
36:40
and I know this is not advice, but it's always awesome
36:43
to hear.
36:44
Have you learned something?
36:45
Oh, the time you go and swipe your cards.
36:48
You'd be like, I know where this is going.
36:50
I don't know where this is going.
36:51
I'm here, I'm here, I'm here, I'm here, I'm here.
36:53
You'll be chatting to the guy,
36:54
but the guy selling.
36:55
Did you know in the last 30 seconds,
36:56
that's on here, here, here.
36:58
He's like, oh, caring.
37:00
No, I find it personally interesting.
37:02
I can't stop talking to him.
37:03
I'm sorry.
37:03
Sorry.
37:05
Thank you so much for listening to Raising the Curve.
37:08
These conversations are designed
37:09
to teach you everything that you need
37:11
to know to be better with your money,
37:12
from saving, to investing, to talking to your friends
37:15
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37:16
And if you liked what you heard, we would love it.
37:19
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37:21
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37:21
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37:23
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37:25
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37:28
Okay, lots of love to see you soon.
37:30
Bye.