Visa and Lightning: How Do They Compare?
Research - Andrew - December 9, 2019
Visa and the Lightning Network are both designed to handle small, high-throughput transactions. Let's examine the differences.
Technical Comparison
| Feature | Visa | Lightning |
|---|---|---|
| Network Membership | ~15,000 licensed members | Permissionless – anyone can join |
| Protocol Specifications | Proprietary – not publicly available | Open Source – publicly available on GitHub |
| Node Operation | Centralized network operators | Decentralized – anyone can operate a node |
| Transaction Routing | All transactions must pass through Visa's central network | Transactions route directly between participants; can bypass larger nodes |
Settlement
| Feature | Visa | Lightning |
|---|---|---|
| Authorization | Real-time (seconds) | Instant |
| Settlement | Batched – typically 24 hours | Gross settlement – immediate |
| Payment Failure Reason | Authorization decline (issuer decision, fraud, insufficient funds) | Insufficient channel liquidity |
Financial Risk
| Feature | Visa | Lightning |
|---|---|---|
| Counterparty Risk | Visa member institutions carry counterparty risk. System assumes solvency of all participating banks | No counterparty risk. Payments are cryptographically final and settlement is atomic |
| Historic Precedent | Bank failures regularly disrupt payment networks | First time in history a payment network operates without counterparty risk |
Fees
| Feature | Visa | Lightning |
|---|---|---|
| Fee Structure | Complex, multi-layered. Includes: interchange fees, assessment fees, processing fees | Simple, free market structure. Nodes set fees; users choose routes based on fee preference |
| Fee Setting Authority | Visa sets fees. Issuing banks and merchants negotiate separately | No central authority. Each node operator sets their own fee |
| Incentive Alignment | Visa benefits from bank fees but has competing incentives with merchants; issuing banks benefit from interchange | All participants benefit from lower fees (lower fees = more throughput) |
Unique Lightning Use Cases
Streaming Payments
Lightning enables payments to occur continuously, in real-time, as a service is consumed. Imagine paying a cloud computing provider per CPU cycle as you use it, rather than receiving a bill at month's end. Or paying for an HTTP request as you make it, rather than as part of a subscription. This opens up entirely new business models.
Micropayments
Visa's minimum transaction cost is roughly $0.05 (due to processing fees). Visa cannot process transactions smaller than this profitably. Lightning enables payments of one satoshi ($0.0002 in current value). This opens up entirely new markets.
Privacy
Cash transactions are private. Credit cards are not. Regulatory requirements mandate that card networks track all transactions above a certain threshold. Lightning offers a privacy-oriented payment alternative similar to cash but can be used for online transactions.
Conclusion
Visa and Lightning are both designed to handle high-throughput transactions. But they differ significantly in their architecture, governance, settlement, risk profile and fees.
Visa was built in a world where a central authority was necessary to prevent double-spending. That's no longer true. Bitcoin solved this problem in 2009. Lightning builds on Bitcoin to create a payment system that is faster, cheaper, more private, and more resilient than Visa.
We believe that as Lightning scales and becomes more accessible, it will increasingly compete with Visa in the retail payments space.