Visa International

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Visa International

founded: 1970 as national bankamericard inc.

Contact Information:

headquarters: 3155 clearview way
san mateo, ca 94402-3798 phone: (650)432-3200 fax: (650)432-7431 url: http://www.visa.com

OVERVIEW

Although one might use the terms "Visa" and "credit card" interchangeably (which attests to the company's dominance in the market), credit card transactions are actually only one portion of Visa International's business. Visa, like its rivals MasterCard and American Express, formally operated as a "consumer payment system" business. (Analysts refer to this business segment as the "card industry.") Visa is owned by 21,000 banks, each of which issues and markets its own credit or debit cards and competes with other banks and financial institutions for customers. But all banks that issue Visa cards participate in Visa's VisaNet payment system. This system provides its member banks with authorization, transaction processing, and settlement services for purchases from the 14 million or so merchants around the world who accept the Visa card from more than 600 million Visa users. As these numbers indicate, Visa is the number-one consumer payment system in the world. During 1997 Visa gained over 50 percent of the U.S. market share in consumer credit and did $1.14 trillion in business volume worldwide, twice that of its closest rival MasterCard. Visa is also the domestic leader in the debit card industry. Although about 80 percent of Visa's business is in credit transactions, its debit card business is its fastest-growing segment. Besides debit and credit cards, Visa also provides Internet payment systems, smart cards, and traveler's checks.

COMPANY FINANCES

In 1997 Visa International cornered 52.3 percent of the U.S. market share in consumer credit (up from 51.5 percent during 1996) and had an estimated volume (purchase volume and cash transactions) of $1.14 trillion worldwide, a 22-percent increase over 1996. In the United States, it saw a 17.2-percent growth in business from the previous year with a total volume of $525 billion in consumer credit. In 1996 it had worldwide volume of $930 billion, and in 1995 this figure was $746 billion. Its revenues for 1997 were estimated at $1.6 billion; 1996 revenues were $1.9 billion and 1995 saw estimated revenues of $1.6 billion.

ANALYSTS' OPINIONS

Analysts give several reasons for Visa's global market dominance. First, the financial institutions that issue Visa cards tend to be those that have very aggressive marketing campaigns. Visa itself has had a long and persistent ad campaign, and its sponsorship of the Olympics has only enhanced its business. Analysts also point to the trend toward mergers between banks that also happen to be Visa card issuers. Another reason is the rapid growth in debit card use, especially in the United States, where Visa also dominates. This latter phenomenon is being fueled by debit card use in "personal consumption expenditures," the type of spending that people do at supermarkets, dry cleaners, and drug stores, etc., where debit cards are replacing cash and checks. Debit cards represent a huge market and are expected to grow at a tremendous rate.

HISTORY

The story of Visa International began in 1958, when the Bank of America first issued its blue, white, and gold BankAmericard. In 1966 the bank set up the BankAmerica Service Corporation to license use of the card by local banks across the country. At a 1968 meeting of more than 100 bank licensees, 38-year-old Dee Hock of Seattle's National Bank of Commerce was outspoken in suggesting new ideas for restructuring the credit card operation. The association rewarded Hock by electing him head of a committee to address the problems he had identified. By 1970 Bank of America had separated itself from the credit card licensing operation, and National BankAmericard Inc. (NBI) was created as a private corporation with Hock as its leader. In 1974 Hock sold the card's foreign operations to IBANCO, a consortium on which he served as CEO. Around this time it came to his attention that the "America" in the card's name was seen as a drawback to foreign users, so in 1977 BankAmeri-card became Visa, NBI became Visa U.S.A., and IBANCO became Visa International. Over the next six years Visa surpassed rival bank card MasterCard, establishing a 60-percent market share. In 1984 Hock retired as president of Visa, around the time the company became involved with automated teller machine (ATM) networks. By the early 1990s Visa had expanded its comprehensive data processing operations (inaugurated in 1972 as VisaNet), with data centers in England and Virginia that could process 807 transactions per second. Visa was the clear leader in the bank card industry during the 1990s, despite fierce competition from rival American Express, a battle fought in part through aggressive ad campaigns by both companies.

FAST FACTS: About Visa International

Ownership: Visa International is a privately held company and is owned by approximately 21,000 banks.

Officers: Edmund P. Jensen, Pres. & CEO, 60; Jan Soderstrom, Exec. VP of Marketing; Raymond Barnes, Chief Administrative Officer

Employees: 3,590

Principal Subsidiary Companies: Visa International has two U.S. subsidiaries: Visa U.S.A. Inc. and Visa Interactive.

Chief Competitors: Visa International's main competitors are the other consumer payment system companies including: Mastercard; American Express Company; and Morgan Stanley Dean Witter.

STRATEGY

President and CEO Edmund P. Jensen summarized Visa's international strategy to the American Banker in February 1998 where he outlined Visa's focus in broad terms: In moving forward as an industry leader in technological advances and innovation, Visa will upgrade its VisaNet system and continue to invest in Internet commerce and its smart card, including the processor technology that goes into these cards. The company is also focusing on its debit cards, the fastest growing segment of the consumer payment system. Jensen was quoted in the American Banker as being very optimistic about these cards. Visa also plans to proceed with its marketing-related efforts to strengthen its brand (name) recognition among consumers. In addition, Jensen reiterated the company's goal of gaining a larger share of Europe's growing consumer credit market, as well as its commitment to the domestic card market.

INFLUENCES

Alarming societal changes and trends of the decade influenced Visa International's actions in the 1990s. Among these was the rise in personal bankruptcy, which Visa attributes to several factors. One factor is the anonymity of modern urban life, which has decreased the social stigma associated with bankruptcy so that friends and neighbors of a person who has filed for bankruptcy may not even be aware that the person has done so. The increase in personal bankruptcies is a threat to Visa because it leaves the company (and other cardholders) with the financial responsibility for persons who do not pay. As proof of this growing trend, 1996 saw a record 1.2 million bankruptcy filings. Visa responded by instituting consumer-education programs and recommending changes to the U.S. bankruptcy code. Other factors were security issues associated with electronic banking, particularly on the Internet, as well as the levying of ATM (automated teller machine) access fees. According to Visa, it had forbidden its member banks from charging such fees but was forced to change its policies for two reasons. First, a bank in Nevada filed suit against the corporation in order to gain the right to charge access fees; and second, Visa realized that customers wanted more machines in remote or expensive areas (e.g., airports), a costly move for banks to implement.

CURRENT TRENDS

Perhaps the most important trend to impact the consumer payment system industry recently is the vast potential of the smart card. Smart cards, which have been used in Europe for years, look like credit or debit cards except that instead of having magnetic strips, they have a computer chip imbedded in them that gives both users and issuers a much broader range of functions. Industry analysts have predicted that the smart cards will "revolutionize" the way business is conducted and will eventually lead to the much-vaunted "cashless" society. For example, with a smart card a user can transfer funds from an ATM machine onto the card; the card can then be used for pay telephones or vending machines. But the card's real potential may be in its identification verification ability and its Internet and computer uses. Some are beginning to call these cards "miniature computers." With its "Partner Program," which forms part of its smart card strategy, Visa has made an agreement with Sun Microsystems to use Sun's "Java" programming language to better facilitate increased cross-platform compatibility for its card's Internet use, and will also embed Sun's microprocessors into its smart cards.

PRODUCTS

Visa is involved with a wide range of consumer payment systems, including its Classic Card, issued by financial institutions in 130 countries, and specialty versions of the credit card such as the Gold Card, Corporate Card, Business Card, and Purchasing Card. It also offers the Check Card, a debit card; Visa TravelMoney, which allows users to access local currency while overseas; Visa Travelers Cheques; and Visa Cash, a smart card that stores value on a chip and deducts it as the consumer continues to make purchases.

CHRONOLOGY: Key Dates for Visa International

1958:: Bank of America issues the BankAmericard
1966:: The BankAmerica Service Corporation is created to license use of the card by local banks nationwide
1970:: Bank of America separates itself from BankAmerica, which becomes the independent, private corporation National BankAmericard Inc. (NBI)
1974:: Foreign operations are sold to IBANCO
1977:: BankAmericard becomes Visa, with NBI becoming Visa U.S.A., and IBANCO becoming Visa International
1983:: Visa sets up a global network of Automated Teller Machines (ATMs)
1987:: Obtains a contract to operate Interlink, the largest retail network that accepts debit cards in restaurants and stores
1993:: Acquires the Plus System of ATMs
1997:: Begins testing a card made for making payments via the Internet
1998:: Vietnam's largest bank begins issuing Visa cards

CORPORATE CITIZENSHIP

There are two broad aspects of corporate citizenship in this highly community-oriented and socially responsible corporation. Visa offers free classes to educate consumers on making smart financial decisions, and it sponsors a number of community service programs. Visa U.S.A. sponsors a number of free classes and educational programs dealing with aspects of credit and financial management. The Choices and Decisions program, for instance, debuted at the high school and college level, and proved to be such a success that it was offered to older people as well. Fiscal Fitness, offered in conjunction with the National Foundation for Consumer Credit (NFCC), is geared particularly toward Visa's customers. Money 101: The Basics of Balancing Your Budget went on tour to 20 U.S. cities from May 1997 to the end of the year, providing consumers with information on budgeting and management of their finances. For college freshmen, the company offers its Earning Credit educational program to teach sound financial-management habits. Finally, in 1997 the company announced that it would make available a number of instruction manuals such as Credit Cards: An Owners Manual (which features the comic-strip character Cathy) free-of-charge via an 800 number. Visa also sponsors a number of community programs. Citymeals-on-Wheels, which Visa initiated, offers food to elderly persons who are needy and confined to their homes. Read Me a Story is an educational program geared toward teaching young children the value of reading and encouraging parents to read to their children. The company sponsored a nationwide tour by actor Danny Glover in conjunction with this program.

GLOBAL PRESENCE

Visa divides its operations into six regions: Asia-Pacific; Canada; Europe; central Europe, Middle East, and Africa; Latin America and Caribbean; and the United States. Among the new markets being explored by Visa in the late 1990s were plastic cards for making payments via the Internet, which it inaugurated with a British test project in 1997. Both Visa and MasterCard were reported to be fighting an intense public relations battle to win the potentially lucrative (and enormous) Chinese market. The company was also making inroads into the German market, which has not traditionally been a favorable one for credit cards because Germans tend to prefer cash or bank transfers. In April 1998 Vietnam's largest bank began issuing Visa cards to its customers.

EMPLOYMENT

Alan Webber of Fast Company magazine observed that Visa operates "without any of the ordinary rules of organizations. Like the human brain, it works without a rigid organizational chart or hierarchy." This image concurs with the vision of Visa founder Dee Hock, who said, "The better the organization is, the less obvious it is," and suggested that his company could serve as a model for the corporation of the twentieth century. Visa's literature portrays the company as highly youth-oriented, welcoming the contribution that younger adults can offer. Of particular interest to young people is its College Hire Program, which gives college students an opportunity to work for the company while still in school, and thus gain valuable on-the-job experience. The program gives students a chance to rotate through different departments of the corporate structure in order to see it from top to bottom, and encourages them to initiate one-onone informational meetings with company management to learn more as they go.

SOURCES OF INFORMATION

Bibliography

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bray, nicholas. "visa to test cards for possible use on the internet." the wall street journal, 10 february 1997.

"card briefs: visa pos volume tops $100m in asia-pacific." american banker, 7 april 1998.

coulton, antoinette. "issuers test on-line waters with net-oriented visa cards." american banker, 4 march 1998

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fickenscher, lisa. "visa makes alliances to push its brand on the net." american banker, 30 december 1997.

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kutler, jeffrey. "standards war winding down to final salvos." american banker, 1 may 1998.

——. "visa international's president focusing on focus. (edmund jensen)" american banker, 5 february 1998.

schifrin, matthew. "who owns the cashless society? forbes, 16 june 1997.

silber, kenneth. "smart cards flunking test?" us banker, march 1998

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