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Cash is dead, viva credit March 20, 2008

Posted by mylastresort in analysis, sovereign funds.
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The statement “cash is king” is slowly being replaced by viva credit. Paperless transactions have over taken the shopping areas as being simpler, cleaner, more efficient, and faster than cash. Based on this – and a lot more – during one of the worst credit crisis’ in history, Visa decides to go ahead with its IPO.

The Visa IPO drew “Extreme demand” according to Scott Sweet of the research firm IPO Boutique. Most of the investors were dissatisfied by their allocation and decided to purchase more when the market began trading this week. The IPO launched at $42 has now reached $65 per share in its first week of trading. The Kuwait Investment Authority, among other sovereign funds, have shown interest in investing (or perhaps increase their shares).

Visa Inc. charts

Following the first day of trading it ended well above expectations and is being hailed as a ’savior’ of the current market turmoil. When people are feeling cash poor they tend to spend using credit cards. The credit card companies don’t own the debt they merely receive a transaction fee with every swipe.

Some of the Visa IPO details:

  • Offering 406 million shares
  • Priced at $42 per share
  • Raised approximately $16 billion

Increasing economic growth and the falling unemployment rate has sparked a new wave of personal bankruptcy rates in the late 90’s. In 1998, 1.4 million Americans were among the same category. These rates were a precursor to the events which are happening today if anyone had noted that those rates had grown to nearly 10 times the rate of the ‘Great Depression.’

Some Facts regarding credit cards:

  • Visa market share is 60% of the worlds credit market (MasterCard has 26%)
  • In retail transactions credit cards are used more often than cash
  • Contactless card transactions are twice as fast as cash
  • People spend 20% more when using a credit card than cash
  • Americans own around 1.5 billion credit cards
  • 3/5 of americans are responsible for $560 billion in credit card debt
  • Average credit card debt is $11,000 + per household
  • MasterCard stock grew 408% since it began trading (2 years ago)

Comments»

1. intlxpatr - March 23, 2008

In the US, there are many places where when you hand them cash, they will look at you with a deer in the headlights look and say “we don’t have change. Don’t you have a credit card??”

2. mylastresort - March 23, 2008

intlxpatr – I can see that happening, sadly enough in Kuwait some places charge you for swiping your card.

A while ago I had purchased a pc and when i went to pay the employee told me that a KD 50 ($186) charge would be added for non cash payments. When I asked why he explained that it was ‘policy.’