July 29, 2011 by Leave a Comment
This week Visa held its earnings call and one of the key announcements was a pricing restructuring. In what appears to be a direct response to Durbin regulations, Visa is lowering its variable per-transaction fees and introducing a “network participation fee” in the United States for all of its debit, credit and prepaid card services. The participation fee will apparently be based on a merchant’s size and the merchants’ number of locations. While not disclosing the specifics, Visa claims that the overall fees will be reduced. According to JP Morgan securities analysts, Visa has about 75% signature debit market share and 55% PIN debit share in the US, so clearly has the most to lose from the final Durbin ruling requiring all debit cards to carry two unaffiliated network badges. Many large issuers in the past carried both Signature and PIN networks from the same company (e.g. Visa/ Interlink or MasterCard/ Maestro); now, they will have to either change one of the networks or to add another network to their cards, which will give more routing choices to the merchants. Visa’s change to the pricing structure is designed to keep competition at bay and to encourage merchants to continue routing the transactions over Visa’s networks and benefit from lower transaction fees and economies of scale. The last thing that the networks need is a price war and Joe Saunders, Visa’s chairman and CEO was keen to make that point by saying “we have no intention, nor do we think we have to start, a race to the bottom” on pricing. Yet, it is clear that Visa does not intend to give up its leading market position without a fight. The gloves are coming off; it will be interesting to see how MasterCard responds. Their earnings call is next week – not long to wait.
June 9, 2011 by 2 Comments
Visa announced the acquisition of Fundamo, a top solution provider for Mobile Network Operators (MNO) to support mobile payments. Visa clearly saw mobile money as a threat. Too many mPesa success stories combined with the ability to send money from mobile phone to mobile phone across carriers would create a powerful global payment scheme in developing markets. Mobile payment hubs such as that proposed by BICS or Sybase 365 for MNO payment interoperability would enable people to send money from one mobile number to another in the same way they send an SMS. This is a huge threat to Visa an no one would understand that better than Bill Gadja, now at Visa and formerly at the GSMA as chief commercial officer. Visa’s acquisition of Fundamo gives Visa an entree into the MNOs. Visa talked about offering a “Visa overlay” mapping each mobile money account on the Fundamo platform to a Visa prepaid account, enabling people with a mobile money account to use it as a Visa card outside the mobile network operator’s closed loop system: e.g. on a web site that accepts Visa. It’s a great way to get a toehold in emerging markets and compete with a mobile payment scheme that is beginning to take hold across carriers. This is a good strategy for Visa to try and head mobile money off at that pass. There was no one better to buy than Fundamo.
September 6, 2010 by 2 Comments
The European Commission has continuosly stressed the need for a pan-European card scheme as an alternative to Visa and MasterCard. The chief argument goes that the existing duopoly of the two giants limits competition and choices for the European banks. There was a time perhaps when the association status of both schemes used to colour their commercial judgement. I also remember their own messages at a time, which went along the lines “we are not competing against each other, we are both competing against cash”. Sure, cash remains an important target for both Visa and MasterCard, however, since their respective IPOs, I am seeing an increasingly fierce competition between these two firms. Both of them have been very active in staking the ground in contactless (Visa with payWave and MasterCard with PayPass) and mobile services. My UK bank has recently replaced my Maestro debit card with Visa debit – a clear sign that the competition between the two for bank accounts also remains strong. However, a number of recent announcements indicated that we might be entering a new phase in the “battle of giants”. It didn’t take long after Visa announced its intentions to strenghten its position in e-commerce with the acquisition of CyberSource, for MasterCard to follow with its own acquisition of Datacash, a European e-commerce service provider. And while MasterCard’s announcement on August 30th to partner with Borderlinx, a company that helps facilitate cross-border e-commerce, is still fresh in our minds, we should also note that Visa has done a similar deal with Borderlinx for its customers in the GCC region back in April 2010. Who says there is no competition in the cards world?
June 1, 2010 by 1 Comment
It was my wife’s birthday this last weekend, so as a special treat, I arranged a romantic getaway, just for the two of us, without the kids. On the way to our weekend destination, we stopped for lunch at a rural ‘gastropub’, a very nice place with some excellent if slightly exotic dishes (haggis cottage pie anyone?). At the end of our lunch, I wanted to pay with American Express. Now, I do have a few cards in my wallet, but my Amex card collects points with Nectar, one of the UK loyalty schemes, so I quite like using it when I can. However, the owner of the place who came to collect my payment said, “I am sorry sir, we don’t take Amex. They still charge us for taking their cards”. The fact he wasn’t accepting Amex was not too surprising – while the gap is narrowing, there are still quite a few more places accepting Visa or MasterCard than American Express, especially among the smaller merchants. What I did find interesting was the phrase “they still charge us”, as if it was something unique in the market. I challenged that he surely got charged by his acquirer for accepting other cards as well, but he said it was a lot less, and generally sounded as if he has fully accepted that charge as a cost of doing business. Given the occassion, I wasn’t in the mood for an impromptu market research on MSC rates across different schemes, so I just simply paid the bill with my Visa. Lloyds TSB, one of the top UK banks, have an interesting solution for situations such as this – Airmiles Duo Credit Card. Anyone signing up for this card gets in fact two cards – one American Express and one MasterCard. What’s interesting is that the rewards the customer gets from spending on Amex is five times better than the ones on the spend through MasterCard. In other words, the customer is incentivised to use his/ her Amex card wherever it is accepted, yet they have a MasterCard as a fall-back option in those places where it’s not. Both cards are linked to the same account, one credit limit and one statement. And both cards do earn rewards, albeit it at different rates. I might have to consider getting one myself next time.