The Broken Flywheel: Why I Don't Own Visa, Mastercard, or PayPal

I. The Three Cards

We have three bank cards in our European household.

We’ll keep one.

Not because of budget constraints. Because of analytical conviction.

In April 2024, I initiated positions in both Visa and Mastercard. One year later, I exited both — rotating into Nvidia and Alphabet. They were winning positions and voluntary exits.

Not because the thesis was broken at the time — the numbers were still good. Because I could see what was coming for them in Europe, and the risk I was underwriting no longer matched the multiple I was paying.

This article explains why I haven’t gone back. Why the same reasoning partially invalidates the PayPal recovery thesis. And why I believe the next decade will prove that the flywheel these businesses built their dominance on — in Europe at least — is not slowing down.

It’s broken.

II. What The Market Is Pricing — The Classic Moat

Before attacking it, you have to understand it.

The Visa/Mastercard flywheel works like this: more issuers attract more merchants, more merchants attract more cardholders, more cardholders generate more transactions, more transactions produce more data, more data enables better value-added services, better services attract more issuers. Round and round.

The five pillars of the moat:

Network effects — 150 million acceptance points across 200+ countries. Switching costs — decades of embedded infrastructure in every bank’s core systems. Proprietary tokenisation — 16 billion tokens provisioned as of FY2025. Transactional data — 901 million transactions processed daily. Network-agnostic VAS — $10.9B in FY2025, growing at +24% year-over-year.

The numbers that comfort the market:

Visa FY2025: $40B net revenue, +11%. Data processing +13%. International transaction revenue +12%. VAS +24%. Client incentives: $15.8B, up 14%. The bull case looks airtight.

And if you only look at the United States, it probably is.

III. The Vectors of the Broken Flywheel

3.1 No rewards, no loyalty — just fees

The European card market has a structural weakness that rarely appears in analyst models: the European consumer derives no perceived value from their card.

In the US, Visa and Mastercard defend their moat through rewards — miles, cashbacks, airport lounges. Switching has a real psychological cost. You leave something behind.

In Europe, the Interchange Fee Regulation has capped interchange at 0.20% for debit and 0.30% for credit since 2015. Rewards are essentially nonexistent. The annual card fee pays for a commodity service the consumer already resents. Revolut, Wise and their peers have accelerated this erosion — disaggregating the last perceived advantages of the premium card one use case at a time. Free currency exchange. On-demand travel insurance. Instant payments.

When a free alternative arrives in this context, there is no friction in switching. No miles to lose. No lounges to give up. Just fees you stop paying.

The German market deserves a separate mention — not as an exception, but as the most acute exposure. PayPal commands approximately 30% of German e-commerce transactions, the dominant payment method in Europe’s largest online market. That position was built on a single use case: I want to pay online without giving my card number, with buyer protection. PayPal owned that use case in Germany for two decades.

Wero just took it. Launched in 2024 by the European Payments Initiative — backed by the major German, French and Belgian banks — Wero delivers the identical use case: no card number, instant settlement, buyer protection. Except it is European, public, and carried by the banks Germans already trust with their savings. PayPal’s strongest market in Europe is about to become its graveyard.

3.2 A2A — the disruption already underway

This is not a theory. The empirical proof exists. Two of the world’s most populated countries have already lived through it.

PIX — Brazil, launched November 2020

Mandated by the Banco Central do Brasil. Free for individuals. 0.33% for merchants versus 2.3% for cards. Participation mandatory for any institution with more than 500,000 accounts.

Five years later: 64 billion transactions in 2024, surpassing the combined volume of Visa and Mastercard. Cash usage collapsed from 43% to 6% of payments. 93% of Brazilian adults use PIX. Estimated losses for Visa and Mastercard between 2021 and 2024: R$12 billion combined.

The political signal: in September 2025, the US Trade Representative launched a formal investigation into PIX, calling it an “unfair competitive disadvantage” for US card networks. A White House report in April 2026 reiterated the concern. President Lula responded: “No one will make us change PIX.”

When Washington launches trade investigations against a payment system, it confirms the threat is real and structural — not marginal.

UPI — India, launched 2016

Nine years in, UPI processed 644 million transactions in a single day in June 2025 — surpassing Visa’s global daily average of 639 million. In May 2025, UPI transaction value was 12 times greater than the combined total of all card transactions in India. The market share of credit cards in India’s digital payments fell from 43% in 2018 to 21% in 2024. UPI is growing at roughly 40% annually. Visa at 10%.

The lesson from PIX and UPI:

Cash is the first casualty. Cards are the second. The broken flywheel doesn’t replace Visa directly — it captures the migration from cash before cards ever get there, then starts eating into card volume from below.

3.3 The digital euro — sovereign disruption

What is the digital euro?

The digital euro is a central bank digital currency (CBDC) — a form of public money issued directly by the European Central Bank, with the same legal status as cash. Not a stablecoin. Not a private payment instrument. Sovereign money, guaranteed by the ECB, accessible to every citizen and business in the eurozone.

The distinction matters. When you pay today with a card, you are using commercial bank money — private money, processed through private infrastructure owned by American corporations. The digital euro would be the first form of public digital money directly accessible to European citizens. The equivalent of a banknote, but digital.

In practical terms: you hold digital euros in a wallet — provided by your bank, a post office, or any authorised payment service provider. You pay in-store, online, or peer-to-peer, online or offline. No internet connection required for offline transactions. No transaction fees for users. No interchange fees for merchants.

The ECB has been explicit about what it is designed to replace: dependence on foreign payment infrastructure. As the Banque de France noted in its 2024 report, international card networks — Visa, Mastercard, American Express — now represent 69% of card payments in the eurozone, up from 61% in 2022. That number is moving in the wrong direction, from Brussels’ perspective.

Key design features confirmed by the ECB:

• Mandatory acceptance — every merchant in the eurozone will be required to accept the digital euro. No opt-out. Universal from day one.

• Free for users — no fees for individuals, comparable to cash withdrawals today.

• Privacy by design — the ECB will not have access to personal transaction data. Offline transactions will offer cash-equivalent confidentiality.

• Holding limit — to prevent destabilisation of commercial bank deposits, individual holdings will be capped, likely around €3,000. This is not a savings instrument. It is a payment instrument.

• Complementary — the ECB has been careful to frame the digital euro as complementary to cash and existing payment methods, not a replacement. Christine Lagarde and Ursula von der Leyen co-authored an op-ed in January 2025 positioning it explicitly as Europe’s response to the technological transformation of payments.

The timeline:

Study phase launched in 2021. Preparatory phase closed in October 2025. On February 11, 2026, the European Parliament adopted two supporting amendments by 443 votes to 71. Target legislative framework: June 2026. If adopted, real-condition pilot: mid-2027. First issuance: 2029.

The decision to issue remains conditional on the legislative framework being adopted in 2026. But the political momentum — accelerated sharply by events described below — makes that adoption increasingly likely.

The personal and professional angle

We have three bank cards in our household — at approximately €9 each per month. We will keep one — for international travel, for insurance coverage, for the handful of use cases where no alternative exists yet.

The other two will go.

Not because we are making a political statement. Because they will have become redundant for 80% of our daily transactions. Groceries, utilities, online purchases, P2P transfers — all covered by the digital euro at zero cost, with mandatory acceptance everywhere in the eurozone.

€18 saved per month in our household — €216 per year. Trivial in isolation. Multiply it across 150 million eurozone households making the same calculation, and it becomes a structural revenue erosion for the card networks. Silent. Gradual. Irreversible.

The household case is visible. The professional case is less discussed — and analytically more significant.

As an independent analyst, I may end up with no professional card at all. If the digital euro covers daily payments and domestic B2B transactions, a corporate card becomes a recurring monthly cost with no value-add on the vast majority of transactions. The one remaining use case — international business travel — does not justify a permanent card relationship for most small operators.

Multiply this across the millions of self-employed professionals, freelancers, and small businesses across the eurozone. This is not a niche. It is a structural dismantling of the commercial card base — and no one will ring a bell when it happens.

The Guillou case — when the infrastructure showed its true owner

On August 20, 2025, the US Treasury placed Nicolas Guillou — a French judge at the International Criminal Court — under sanctions, alongside narcotraffickers and Al-Qaeda members, for having authorised arrest warrants against Prime Minister Netanyahu and former Defence Minister Gallant.

The consequence was immediate: Visa and Mastercard were legally required to comply with US OFAC sanctions — they had no choice under American law. That is precisely the point. PayPal closed his account for the same reasons. On French soil, in euros, a French judge could no longer pay for groceries.

His own words, delivered at the Union Syndicale des Magistrats congress in October 2025, are the most important sentence in this article:

“I realised that we have no sovereignty left in Europe over payment systems, since we depend almost exclusively on American payment cards — Visa, Mastercard and American Express. Even if your bank doesn’t close your account, you no longer have any means of payment.”

As Le Monde reported on November 19, 2025 (in french): the executive power of the United States can exclude any European citizen from the banking system and digital space of their own country — on their own soil, in their own currency.

This is not an edge case. This is a live demonstration that European payment infrastructure is foreign infrastructure under foreign jurisdiction.

Every bureaucrat at the ECB and in Brussels saw this. They will see this project through.

Why the digital euro is categorically different from private A2A:

Private A2A wins through economic competition — slowly, use case by use case. PIX took four years. UPI took nine.

The digital euro wins by sovereign decree, on day one:

• Mandatory acceptance across the entire eurozone from launch

• Free for users and merchants — zero migration cost

• Infrastructure financed by the ECB — no switching cost for banks

The network effect is not built. It is mandated.

What Visa says itself — and what Mastercard and PayPal don’t:

Visa’s FY2025 10-K explicitly documents this risk:

“The European Central Bank has embarked on a multi-year effort to explore a digital euro, an alternative to foreign digital currency and payment service providers. If successfully deployed, these national payment platforms and digital currencies could have significant implications for Visa’s domestic and cross-border payments, including potential disintermediation.”

Mastercard’s 10-K does not formulate this risk with equivalent precision. PayPal does not address it at all. This is not reassuring for Visa. It is alarming for the other two.

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The international bastion — and its limits

Version 1.0 (2029): the bastion holds

The digital euro in its initial form will be restricted to eurozone residents and non-residents holding an account at a eurozone payment service provider. An American tourist in Paris, a Japanese businessman in Frankfurt — they still pay with Visa. The cross-border revenue line holds short-term.

This is the one card we keep. Travel. Currency conversion. International insurance coverage.

The extension beyond the eurozone:

The eurozone is the starting point — not the endpoint. Once the ECB infrastructure is operational and demonstrably sovereign, the dynamics shift for neighbouring countries.

Switzerland, Poland, the Nordics — none are in the eurozone today. But they observe. They trade extensively with eurozone partners. They have watched the Guillou case. As the digital euro normalises cross-border eurozone transactions, the pressure on these countries to align — or build equivalent sovereign infrastructure — intensifies. The commercial logic is simple: if your largest trading partners transact on a free, instant, sovereign rail, the cost of staying on card networks becomes increasingly visible.

This is not a 2029 story. It is a 2032-2035 dynamic. But it is directionally certain.

Version 2.0 (2032+): the bastion falls

The ECB’s own progress reports outline potential cross-currency payment functionalities with other central bank digital currencies. India, Brazil, China — all have active CBDC programs. If the digital euro interconnects with a digital dollar, a digital rupee, a digital real — a Japanese tourist pays in euros without a card network in the chain.

The last bastion of Visa’s European revenue thesis does not survive this scenario.

IV. Effects on Visa, Mastercard and PayPal

4.1 Eurozone revenue decline

Visa does not disclose a precise eurozone revenue split. What the FY2025 10-K confirms: the US represents approximately 39% of net revenue. The remaining 61% is international — and Europe represents a significant component.

Apply a conservative scenario: 50% decline in domestic eurozone transactional volume by 2032, consistent with PIX’s trajectory in Brazil over five years.

The impact cascade is direct:

Data processing revenue ($20.0B in FY2025, +13% from 2024) — charged per transaction processed on VisaNet. If eurozone domestic transactions migrate to the digital euro rail, this line takes the first and largest hit. No transaction on VisaNet means no data processing fee. Zero.

Service revenue ($17.5B in FY2025, +9% from 2024) — tied to payments volume. Declines proportionally as eurozone card spending shifts to the digital euro.

International transaction revenue ($14.2B in FY2025, +12% from 2024) — the most resilient line. Cross-border tourist spend and currency conversion are not threatened in version 1.0. This is what survives. This is the one card.

Other/VAS ($4.1B, +27% from 2024) — partially resilient. Network-agnostic services (fraud scoring, dispute resolution) can be sold on any rail. But their input — transactional data volume — weakens as eurozone card volume falls.

The net revenue impact of a 50% domestic eurozone volume decline is not 50% of total revenue. But it is not marginal either. It targets the two largest revenue lines simultaneously.

4.2 The margin bull trap

The margin bull trap works like this. Visa’s $15.8B in client incentives are locked into multi-year contracts. When eurozone volume starts migrating to the digital euro, those obligations don’t disappear overnight — they wind down as contracts expire. For several quarters, Visa pays out less in incentives as volume falls, while gross revenue hasn’t yet fully reflected the volume loss. The two lines move at different speeds.

On the P&L, it looks like margin expansion. Analysts call it operational efficiency. Management calls it discipline. It isn’t. The declining incentive line is not a strategic achievement — it is the first visible symptom that the volume those incentives were defending has already left the network.

By the time gross revenue collapses and the structural shift becomes undeniable in reported earnings, the contraction will be irreversible. The market will have spent two or three quarters misreading the early warning signal as good news.

4.3 ROIC collapse — the operating leverage trap

Visa’s FY2025 ROIC is approximately 50% — one of the highest in the S&P 500. Operating income of $24.0B on net revenue of $40.0B. Operating margin above 59%.

This looks like an asset-light business. It isn’t.

VisaNet’s core infrastructure costs — personnel, network and processing, depreciation — are essentially fixed regardless of transaction volume. They do not scale down when European volume migrates. What scales is the top line.

This is the operating leverage that built the ROIC. And it is precisely the mechanism that will destroy it.

When revenue falls on a fixed cost base, the drop in operating income is amplified. A 20% decline in net revenue does not produce a 20% decline in operating income — it produces a 35-40% decline. ROIC compresses from 50% toward a level that no longer justifies the current multiple.

The high ROIC is not a sign of resilience. In this context, it is a sign of how far the fall will be.

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4.4 PE compression — from 30x to something else

Visa and Mastercard currently trade at approximately 29x earnings — below their respective 10-year historical averages of 33x and 37x. This multiple prices flywheel continuity — a business compounding at double digits indefinitely, with no structural threat to its core revenue model.

It does not price:

• Sequential destruction of data processing and service revenue in the eurozone

• The margin bull trap masking early-stage revenue erosion

• ROIC compression amplified by fixed cost structure

• The 2027-2029 digital euro pilot and issuance timeline

• Progressive extension to non-eurozone European countries post-2032

• Inter-CBDC linkage scenarios eliminating the last cross-border bastion

At what multiple does this risk get integrated? Likely 18-20x — implying 35-40% compression from current levels before any fundamental deterioration materialises in reported earnings.

This is not a short thesis. It is a conscious exclusion at current valuation. The risk premium required to own Visa or Mastercard today is not reflected in the price.

PayPal compounds the problem: it carries the substrate risk of Visa and Mastercard in Europe, without the international transaction revenue line that provides the last defensible bastion. There is no equivalent of the “one card we keep” in the PayPal model.

V. Conclusion

This is not a disruption. It is a convergence.

Fintech unbundling. Account-to-account rails. Sovereign digital currency.

Each alone is manageable. All three simultaneously, across the eurozone, between now and 2032 — that is the flywheel dismantling piece by piece.

PIX surpassed Visa and Mastercard combined in Brazil in four years. UPI surpassed Visa in daily global transaction volume in nine years. The digital euro arrives with ECB infrastructure, mandatory acceptance from day one, and a political will that the Guillou case made irreversible.

The regulatory compression started in 2015. The fintechs are already here. The A2A rails are live. The digital euro pilot starts in 2027.

We will keep one card. For travel. For the insurance.

In two years, people will have a name for what is happening to Visa, Mastercard, and PayPal in Europe.

They’ll call it the Finpocalypse.

Important Disclosure & Disclaimer:

All content published by JB Peter on this platform is strictly for educational and informational purposes. It does not constitute investment, financial, legal, or tax advice, nor does it represent a personal recommendation or solicitation to buy or sell securities. This research is operated by ORIACON (SASU) and reflects independent corporate analysis. Every reader must conduct their own independent research (Due Diligence) or consult a licensed professional before making any financial decision, as financial markets involve a high risk of capital loss. At the time of writing, ORIACON or the author hold NO position - long or short - in the companies analyzed in this article. This article reflects a conscious exclusion, not a directional trade. Following this publication, ORIACON and the author reserve the right to buy, sell, or modify positions in any security mentioned at any time, without prior notice to readers or subscribers.