Personal Experience: How to Avoid Digital Rip-Offs

In April of this year, Reuters reported that Visa Inc. topped Wall Street targets for quarterly profits and raised its full-year earnings forecast as more people use credit cards worldwide to buy everything from gas to online goods.

Some of these stocks have been in our company’s buy stock filter for some time as over the last five years, the Earning per Share CAGR as well as Total Revenue Growth CAGR have been growing at double-digit rates. Indeed, these stocks would have been very lucrative investments looking at the five-year price performance below. Similarly, Paypal rival, Adyen, did an IPO earlier this month which valued the company at $8.4 billion. The company now has a value of $12.3 billion.

Reuters
18.06.2018
Market Cap in USD bn 5-Year Performance in % 5-Year CAGR Revenues in % 5 Year CAGR Earning Per Share in %
VISA                                  302.5 199 12 29
MASTERCARD                                  208.4 249 11 15
PAYPAL                                  101.2 18 20
AMER EXPRESS                                    84.7 35 1 9
WORLDPAY                                    26.6 224 17 11
DISCOVER                                    26.0 58 8 6
FIRST DATA                                    20.1 2
GLOBL PAYMNTS                                    18.7 388
WIRE CARD                                    18.2 593 30 25
ADYEN                                    12.3
WORLDLINE                                        7.2 8 -37

Making payments “anytime, anyplace, anywhere.”

VISA Inc.’s 2017 Annual Report states that economic and technological progress—a rising middle class, contactless technology, and mobile computing—are shaping commerce globally and accelerating the migration from cash to digital payments. Last year, for example, global digital payment volume exceeded cash for the first time in history. In fact, the volume at VISA Inc. has grown incredibly fast (as table below illustrates).

Visa Inc. Transactions (Annual Report) 2015 2016 2017
Total volume, including payments and cash volume (trillion) 7.4 8.2 10.2
Payments volume (trillion) 4.9 5.8 7.3
Transaction processed on Visa’s networks (billion) 71 83.2 111.2
Cards (billion) 2.4 2.5 3.2

However, what is striking is that despite payment margin pressures, increased delinquency, and new business models geared to low-cost payment methods, VISA Inc.’s profitability has hardly been affected (see table below illustrating pre-tax margin between 2013 and 2017).

Visa Inc. Pretax Margin (2013-2017, Reuters 18.06.2018)

2013 2014 2015 2016 2017
62% 61% 65% 53% 64%

As you probably are aware, in January 2018, the EU introduced a ban on charges for paying via credit or debit card labelled by European regulators and industry bodies as “rip-off card charges.” On my last trip to the US, I felt that I had to learn a bit more about the charges for the different overseas payment methods prevailing in today’s world.

1st Transaction in the amount of USD 20 at the Houston-Willowbrook Mall on June 1, 2018 (Friday)

Payment by cash

Equivalent of CHF 20.56 (Exchange Rate: 1.028, exchanged at my bank at the Airport in Zurich on June 1, 2018)

Mastercard by Swisscard (One of the credit card companies with one of the highest revenues in Switzerland)

Debit of CHF 20.60 (Processing Fee: 2.5%, Exchange Rate: 1.0044122, will be debited on 23.06.2018)

Mastercard by Revolut (Prepaid, a UK Fintech company)

Debit of CHF 19.77 (Exchange Rate: 0.9885000)

The difference between Swisscard and Revolut is 4.03%, making Swisscard less economical than the cash transaction.

2nd Transaction in the amount of USD 20 at the Houston Airport on June 2, 2018 (Saturday)

Payment by cash

Equivalent of CHF 20.56 (Exchange Rate: 1.028, exchanged at my bank at the Airport in Zurich on June 1, 2018)

Mastercard by Swisscard (One of the credit card companies with one of the highest revenue in Switzerland)

Debit of 20.60 (Processing Fee 2.5%, Exchange Rate: 1.0044122, will be debited on 23.06.2018)

Mastercard by Revolut (Prepaid, a UK Fintech company)

Debit of CHF 19.88 (Exchange Rate: 0.9940239)

The difference between Swisscard and Revolut is 3.50%*, again making Swisscard less economical than the cash transaction.

Notes: The annual credit card fees have not been considered in the above information. Revolut has no annual fee but a one-off fee of CHF 7. The annual fee for Mastercard amounts to CHF 100. The fees to top up the Revolut Card have been 1.84%. These fees could be partly eliminated by a less expensive bank transfer to Lloyds Bank in the UK or a less expensive top-up method.

*Revolut charges a markup from 0.5% to 1.5% on currency exchanges on weekends.

I was not able to pay with Bitcoin at the store. The closest Bitcoin ATM location to withdraw FIAT currency would have been 3.5km away and the withdrawal charges would have been 4% (Coinsource). As Apple Pay is either linked by a Credit or Debit Card, the fees would have been similar. There are also options to use PayPal services, but fees can go up to as high as 3.4% in addition to a fixed fee as well as a currency conversion fee.

Mobile money is spreading fast, most particularly in China, where it is now possible to pay almost anywhere by using Alipay and WeChat Pay. We are seeing the same trend in Africa with M-Pesa and EcoCash. Simply by scanning QR codes, smartphone users can pay bills or purchase goods via mobile payment apps. Many people who have never had a bank account now pay their bills by smartphone or send their relatives money by app instead of sending cash.

In America, Venmo and Square Cash are very popular. In Switzerland, the app TWINT is currently the market leader. With the adoption of real-time bank payments, people can benefit from 24/7 services at very low costs, at least as far as domestic payments are concerned.

As volumes increase with more people using debit/credit cards worldwide or conducting digital transactions in foreign currencies (e.g., flight bookings through Kayak), it is important to select efficient digital payment methods.

People should also pay attention to the management and transactions commissions which they pay to investment advisors or brokers even though they are usually much lower, percentage-wise, than the fees experienced with the payment transactions discussed above. Charges, taxes, and other investment costs can significantly erode the value of your investment portfolio. Who would think to check — or who would spot — that the difference of an ETF on the S&P 500 between two leading providers could vary by 32 bps over a year or by 71 bps over three years? We can certainly help you to find the best solution. Unlike many banks and asset managers, we do not invest in any in-house products. In this way, IAP is free from any conflict of interest or pressure to promote products with vested interests, and can always focus on the interests of the client.

Please contact us if you would like more information on our fees or if you require advice on the most cost-effective payment methods, investment instruments, or platforms to suit your needs.

21 comments on “Personal Experience: How to Avoid Digital Rip-Offs

  1. Avatar
  2. Avatar
  3. Avatar
  4. Avatar
    dizi on

    Having read this I thought it was rather enlightening. I appreciate you taking the time and effort to put this information together. I once again find myself personally spending a lot of time both reading and commenting. But so what, it was still worthwhile! Pepi Bartram Lodmilla

    Reply
  5. Avatar
    dublaj on

    No matter if some one searches for his essential thing, thus he/she desires to be available that in detail, thus that thing is maintained over here. Malissia Eddy Shaughnessy

    Reply
  6. Avatar
    turkce on

    Hello! This is my 1st comment here so I just wanted to give a quick shout out and tell you I really enjoy reading your articles. Can you recommend any other blogs/websites/forums that cover the same subjects? Many thanks! Ruthy Robby Talley

    Reply
  7. Avatar
  8. Avatar
  9. Avatar
    indirmeden on

    Just wish to say your article is as amazing. The clearness in your post is simply cool and i can assume you are an expert on this subject. Fine with your permission allow me to grab your RSS feed to keep up to date with forthcoming post. Thanks a million and please keep up the rewarding work. Legra Alaster Sarson

    Reply
  10. Avatar
  11. Avatar
  12. Avatar
  13. Avatar
    erotik on

    We stumbled over here from a different page and thought I might check things out. I like what I see so now i am following you. Look forward to looking over your web page repeatedly. Carlye Weber Lachlan

    Reply
  14. Avatar
    online on

    I blog quite often and I seriously appreciate your content. Your article has truly peaked my interest. I will book mark your website and keep checking for new details about once a week. I opted in for your RSS feed as well. Quinta Ted Dragoon

    Reply
  15. Avatar
  16. Avatar
  17. Avatar
    turkce on

    I have not seen better Google map integration then this ever. Marker clustering is one hell of a useful feature when you have a huge directory with thousands of listings on map. Ability for the listing submitter to select street view map is an icing on the already yummy cake! Vivia Sean Clevie

    Reply
  18. Avatar
  19. Avatar
    erotik on

    The very crux of your writing whilst appearing reasonable in the beginning, did not work well with me personally after some time. Somewhere within the paragraphs you actually were able to make me a believer but just for a short while. I still have got a problem with your leaps in assumptions and you might do nicely to fill in all those gaps. In the event that you actually can accomplish that, I will definitely end up being impressed. Meris Abel Pate

    Reply
  20. Avatar

Leave a Comment or Question

Your email address will not be published. Required fields are marked *