Worried About a Banking Crisis Right Now? Buy This Stock Instead
The financial services industry has been grabbing headlines lately, and not exactly for the right reasons. The recent collapse of SVB Financial sent shockwaves throughout the sector. Perhaps that's a bit unfair. The issues that plagued SBV Financial were self-inflicted and are unlikely to affect larger, well-established banks. Still, for investors looking for exposure to this industry but unwilling to get into the complex and, on occasion, risky business that banking is, here is one option to consider: Visa (NYSE: V).
Millions of credit cards in circulation are branded with Visa's logo. So it's natural to think the company issues these cards to customers. But that's not the case. Visa is merely an intermediary between the financial institutions that issue credit and the merchants that sell to cardholders. Visa simply provides a platform that transfers payments from customers' banks to merchants' banks, taking a small fee on every transaction.
On the one hand, that means Visa does not make any money on the interest banks charge their clients on credit card balances. But there is also a significant advantage to the company's business model. Namely, it is not subject to the possibility that some customers will default on their debt, also known as credit risk. Let's not forget that too many people defaulting on their housing loans played a significant role in the 2008 financial crisis, so this is no small thing.
Source Fool.com
