Visa International

900 Metro Center
Foster City, California 94404
Mailing Address: P.O. Box 8999
San Francisco, California 94128
U.S.A.
(415) 432-3200
Fax: (415) 432-3856

Private Company
Incorporated: 1970
Billings: $500 billion
Employees: 1,500
SICs: 6153 Payment Cards, Travelers Cheques, and Travel Vouchers

Visa International has grown from a credit card company into the largest full-service consumer payment system in the world. With over 300 million cards issued, the Visa payment card is the most widely recognized general purpose payment card in the world. Worldwide consumer purchases made with Visa exceeded $500 billion in 1993. In the United States, Visa commands approximately 50 percent of the market in transactions made with credit cards, equal to American Express, MasterCard, Discover, Diner’s Club, and Carte Blanche combined.

The driving force behind Visa’s explosive growth was Dee Ward Hock. Born in 1930, the son of a lineman for Utah Power & Light Company, Hock was raised in North Ogden, Utah. He attended a local junior college, married his childhood sweetheart soon after school, and worked in a slaughterhouse and for a brick mason. In the early 1950s, Hock joined the consumer finance department of Pacific Finance Company and soon became a local branch manager.

In 1965 Hock began working for National Bank of Commerce in Seattle, eventually becoming assistant vice-president. At the same time, Bank of America was in the process of licensing BankAmericard, its credit card operation, to other banks. National Bank became one of BankAmericard’s first licensees, and Hock was promoted to manager of the bank’s credit card program. However, many of the new licensee banks complained of delayed payment transfers and lack of adequate measures to prevent user fraud. At a meeting of over 100 bank licensees in 1968, Hock prodded the members to restructure the entire credit card operation. Hock was elected head of the committee to resolve recurring problems.

Hock influenced an industry with a history dating back to 1914 when the first customer charge card was issued by Western Union. This card provided many different services, including deferred payment for preferred customers. Over the years, a variety of hotels, gasoline companies, and department stores issued their customers charge cards, but the first card accepted by a number of different merchants, the Diners Club Card, was introduced in 1950. Merchants were reimbursed for transactions made with the Diners Club Card by deducting a small fee. Customers were billed monthly for the charges they incurred on the card, and were required to pay the full amount of the invoice upon receipt.

In 1951 Franklin National Bank on Long Island issued the first bank-based charge card. The card was accepted only by local merchants, but soon more than 100 other banks were issuing cards. Merchants were charged a fee by the issuing bank for any transaction made with the card, and no fee or interest was charged to cardholders who paid the entire bill upon receipt. However, since these early bankcard systems only served a bank’s local area, profits remained low.

Bank of America issued its BankAmericard in 1958. The card was successfully marketed throughout the entire state of California. One new factor essential to its success was the credit service. BankAmericard provided its customers with the option of paying the balance of the account in installments, with a monthly finance charge on the remaining balance, rather than requiring a full payment upon receipt of the bill. Of course, the customer could still pay the full balance of the account for the month without any finance charge.

Soon Bank of America was forming licensing agreements with banks outside of California which allowed them to issue the BankAmericard. At approximately the same time, a consortium of banks from Illinois, California, and a number of East Coast states established another bankcard association and began to issue Master Charge. In light of the success of these two bankcard licensing associations, most local and regional banks terminated their independent bankcard programs and joined either BankAmericard or Master Charge. By 1970, over 1,400 banks offered one of the two cards, and total consumer charges on the cards amounted to $3.8 billion.

The success of Bank of America’s credit card operation was accompanied by problems, which Hock, in his capacity as head of the banks’ committee, was responsible for solving. He urged the member banks to take control of the BankAmericard program, and in 1970 they created National BankAmericard Inc. (NBI), a consortium of banks that issued the BankAmericard. This independent, non-stock membership corporation purchased the entire bankcard operation from Bank of America over the next few years, and then began to administer and develop the BankAmericard system. Hock was chosen to lead the new organization.

Hock headed an entirely domestic bankcard system. Outside the United States, BankAmericard was issued by Bank of America’s licensee banks in over 15 countries. In 1974 Hock negotiated the sale of all foreign credit card operations held by Bank of America to IBANCO, a group of bank licensees that formed a multinational, non-stock corporation to administer and develop the international operations of the BankAmericard program. He then made the entire domestic BankAmericard system a subsidiary of IBANCO, and served as this group’s chief executive officer.

When it came to Hock’s attention that in many foreign countries there was resistance to issuing a card associated with Bank of America, despite the fact that the association was nominal only, he decided to change the name of the card and the company. In 1977 BankAmericard was renamed the Visa card. Hock chose the name “Visa” because it implied no national identification, it was relatively easy to pronounce in any language, and it made no reference to a bank, which Hock thought might limit how customers perceived they could use the card. Concurrently, NBI was rechristened Visa U.S.A., and IBANCO became Visa International.

Under Hock’s leadership, customer billings for the Visa card rose dramatically, and worldwide name recognition grew at an astronomical rate. The first Visa Classic card was issued in 1977, and in 1979 Visa Traveler’s Checks were introduced. Also in 1979, Visa management began to encourage merchants to use an electronic transaction-authorizing system whenever a purchase was made with the card. Visa terminals read a magnetic strip on the card and automatically requested authorization, thereby reducing retail store fraud by almost 85 percent. The Visa Premiere card was introduced in 1981, and in 1983 the Visa Classic card was redesigned to include a hologram for added security against user fraud. In 1977 Visa’s market share of the bank card business was 40 percent and Master Card International’s was 60 percent. By 1983, the market share proportions of each company had reversed, with Visa’s billings amounting to $59 billion and MasterCard’s billings at $42 billion.

In 1983 Hock implemented one of the most important and far-reaching services known in the credit card industry: a global network of automated teller machines (ATMs) that allowed Visa cardholders to obtain cash at locations far away from the banks or credit unions that originally issued them the card. The network provided a cash-dispensing service for travelers carrying the Visa card; after inserting the card into an ATM, the customer received cash from a bank account or from a previously established line of credit. Most of the ATMs were situated initially in places convenient for travelers, such as airports and tourist attractions, but soon ATMs were placed in banks themselves, gas stations, grocery stores, and innumerable other locations.

Visa’s ATM network was not well received by the banking industry, since many banks operated their own network of automated teller machines. The Plus System Inc., located in Denver, was owned by 34 banks, all of which were Visa members, and had approximately 950 various financial institutions which operated ATMs that only accepted the Plus card. The banks each invested up to $150,000 in order to exclude customers who banked with competitors. Thus, while the Plus System and other similar ATM networks worked hard to ensure exclusivity for their members, Hock was implementing a network that would be accessible to customers of all 15,000 member banks of Visa.

Dee W. Hock retired as president of Visa in 1984 and was succeeded by Charles T. Russell, vice-president and longtime employee of the company. Russell immediately defused the animosity between Visa and its member banks over the ATMs. During that year, the Visa ATM network was the first to complete a transnational transaction.

Visa continued its phenomenal growth under the leadership of Russell. In 1986 Visa and Mastercard took a 73 percent share of the $275 billion worldwide charge card market, and their combined transactions totalled $3.9 billion, far more than any other financial services company.

In January of 1987 Visa won a contract to operate Interlink, the largest retailer, or point-of-sale (POS), network that accepted debit cards in restaurants and stores in the United States. Already managing the California-based Interlink network of transactions since 1984, Visa was ahead of the competition in the burgeoning point-of-sale business. In February of the same year, it reached an agreement to pay $5 million for a 33 percent share in the Plus System of ATMs. By adding the 13,000 machines from Plus, the second largest ATM network in the nation, Visa provided its cardholders with access to almost one-third of the 68,000 ATMs in the United States. The Plus System was acquired completely by Visa in 1993.

One of Russell’s most important strategies to maintain Visa’s market share involved a commitment to improving the company’s communications network. Having started VisaNet in 1972, a comprehensive communications and data processing network, Russell directly supervised a $16 million transformation of the system from a credit card transaction system to a general-purpose electronic payment system, capable of dealing with most any type of consumer banking transaction. Aware that the continued success of Visa was dependent upon the connection between its electronic mail systems and data processing networks, Russell initiated a comprehensive redesign of the company’s data centers. In 1992 Visa converted its Basing-stoke, England, and McLean, Virginia, data centers into global “supercenters” capable of processing worldwide volume from either location. This setup was made possible because Visa incorporated transoceanic fiber-optic cables to upgrade its international communications network. As a result of these improvements, a significant increase in volume occurred while the cost per transaction decreased. In 1992 the number of transactions on VisaNet reached a record 807 per second. The network is capable of processing 1,100 transactions per second at less than a penny per transaction.

By 1992, Visa’s Gold Card, previously the Premiere Card, had become the most widely used and best recognized credit card in the world. Indeed, by all measures of success, 1993 was a banner year for Visa. The company’s total worldwide billings amounted to over $500 billion; more than 300 million cards were issued to customers around the world; more than six billion card and cheque transactions were made, with travelers cheques alone growing to a worldwide sales volume of more than $16 billion; and Visa operated more than 160,000 ATMs in 60 nations.

An aggressive marketing campaign conducted against Visa by MasterCard in 1991 and 1992 appeared to pay off by March 1993. For the first time in 14 years, MasterCard reported a gain in its U.S. market share for charge-card spending, up to 26.8 percent, while Visa’s market share decreased from 45.3 percent to 45.1 percent. The competition between Visa and MasterCard, however, is friendly since almost all the banks that own the MasterCard association also belong to the Visa association, and no one bank benefits from a gain in market share by one at the expense of the other.

Visa’s primary competitor for both the U.S. and international market is American Express. While the Diners Club card holds a 2.2 percent market share of U.S. charge-card spending, and the Sears Discover card a 6.5 percent share, American Express maintains a 19.4 percent share and is working hard to increase it. Both Visa and American Express have intensified the competition for a larger U.S. market share by using the concept of “ambush advertising” in their commercials. Visa, as one of the major sponsors of the 1992 Olympics, used its television ads to remind viewers that the Visa card is more widely accepted than American Express. American Express, on the other hand, featured an Olympic theme while using a clever play on the word “visa” to promote its own card at Visa’s expense.

In the mid-1990s, Visa’s focus was on developing its foreign operations, increasing its debit activity, and improving its technological infrastructure. If past accomplishments are indicative, Visa will continue to serve as the world’s largest full-service consumer payment system.

Further Reading

Garfield, Bob, “AMEX vs. Visa—Round 2: The Agony of Ambushing,” Advertising Age, July 20, 1992, p. 44.

Louis, Arthur M., “Visa Stirs Up the Big Banks—Again,” Fortune, October 3, 1983, pp. 196–203.

—Thomas Derdak

Visa International

3155 Clearview Way
San Mateo, California 94402-3798
U.S.A.
(650) 432-3200
Fax: (650) 432-7431
Web site: http://www.visa.com

Private Company
Incorporated: 1970 as National BankAmericard Inc.
Employees: 4,000
Sales: $1.6 billion (1997 est.)
SICs: 6153 Payment Cards, Travelers Cheques, & Travel Vouchers

Visa International has grown from a credit card company into the largest full-service consumer payment system in the world. With around 600 million cards in circulation as of 1998, Visa boasted the most widely recognized general purpose payment card in the world. Worldwide consumer purchases made with Visa reached around $1 trillion in 1997. In the United States, Visa commanded the majority of the market in transactions made with credit cards. The company also offered numerous products and services in the late 1990s, including debit cards, travelers cheques, and a worldwide ATM network.

Company Origins

The driving force behind Visa’s explosive growth was Dee Ward Hock. Born in 1930, the son of a lineman for Utah Power & Light Company, Hock was raised in North Ogden, Utah. He attended a local junior college, married his childhood sweetheart soon after school, and worked in a slaughterhouse and for a brick mason. In the early 1950s, Hock joined the consumer finance department of Pacific Finance Company and soon became a local branch manager.

In 1965 Hock began working for National Bank of Commerce in Seattle, eventually becoming assistant vice-president. At the same time, Bank of America was in the process of licensing BankAmericard, its credit card operation, to other banks. National Bank became one of BankAmericard’s first licensees, and Hock was promoted to manager of the bank’s credit card program. However, many of the new licensee banks complained of delayed payment transfers and lack of adequate measures to prevent user fraud. At a meeting of over 100 bank licensees in 1968, Hock prodded the members to restructure the entire credit card operation. Hock was elected head of the committee to resolve recurring problems.

Hock influenced an industry with a history dating back to 1914 when the first customer charge card was issued by Western Union. This card provided many different services, including deferred payment for preferred customers. Over the years, a variety of hotels, gasoline companies, and department stores issued their customers charge cards, but the first card accepted by a number of different merchants, the Diners Club Card, was introduced in 1950. Merchants were reimbursed for transactions made with the Diners Club Card by deducting a small fee. Customers were billed monthly for the charges they incurred on the card and were required to pay the full amount of the invoice upon receipt.

In 1951 Franklin National Bank on Long Island issued the first bank-based charge card. The card was accepted only by local merchants, but soon more than 100 other banks were issuing cards. Merchants were charged a fee by the issuing bank for any transaction made with the card, and no fee or interest was charged to cardholders who paid the entire bill upon receipt. However, since these early bankcard systems only served a bank’s local area, profits remained low.

Bank of America issued its BankAmericard in 1958. The card was successfully marketed throughout the entire state of California. One new factor essential to its success was the credit service. BankAmericard provided its customers with the option of paying the balance of the account in installments, with a monthly finance charge on the remaining balance, rather than requiring a full payment upon receipt of the bill. Of course, the customer could still pay the full balance of the account for the month without any finance charge.

Soon Bank of America was forming licensing agreements with banks outside of California that allowed them to issue the BankAmericard. At approximately the same time, a consortium of banks from Illinois, California, and a number of East Coast states established another bankcard association and began to issue Master Charge (later MasterCard). In light of the success of these two bankcard licensing associations, most local and regional banks terminated their independent bankcard programs and joined either BankAmericard or Master Charge. By 1970, over 1,400 banks offered one of the two cards, and total consumer charges on the cards amounted to $3.8 billion.

Consortium Revamps BankAmericard in 1970s

The success of Bank of America’s credit card operation was accompanied by problems, which Hock, in his capacity as head of the banks’ committee, was responsible for solving. He urged the member banks to take control of the BankAmericard program, and in 1970 they created National BankAmericard Inc. (NBI), a consortium of banks that issued the BankAmericard. This independent, nonstock membership corporation purchased the entire bankcard operation from Bank of America over the next few years and then began to administer and develop the BankAmericard system. Hock was chosen to lead the new organization.

Hock headed an entirely domestic bankcard system. Outside the United States, BankAmericard was issued by Bank of America’s licensee banks in over 15 countries. In 1974 Hock negotiated the sale of all foreign credit card operations held by Bank of America to IBANCO, a group of bank licensees that formed a multinational, nonstock corporation to administer and develop the international operations of the BankAmericard program. He then made the entire domestic BankAmericard system a subsidiary of IBANCO, and served as this group’s chief executive officer.

When it came to Hock’s attention that in many foreign countries there was resistance to issuing a card associated with Bank of America, despite the fact that the association was nominal only, he decided to change the name of the card and the company. In 1977 BankAmericard was renamed the Visa card. Hock chose the name “Visa” because it implied no national identification, it was relatively easy to pronounce in any language, and it made no reference to a bank, which Hock thought might limit how customers perceived they could use the card. Concurrently, NBI was rechristened Visa U.S.A., and IBANCO became Visa International.

Under Hock’s leadership, customer billings for the Visa card rose dramatically, and worldwide name recognition grew at an astronomical rate. The first Visa Classic card was issued in 1977, and in 1979 Visa Traveler’s Checks were introduced. Also in 1979, Visa management began to encourage merchants to use an electronic transaction-authorizing system whenever a purchase was made with the card. Visa terminals read a magnetic strip on the card and automatically requested authorization, thereby reducing retail store fraud by almost 85 percent. The Visa Premiere card was introduced in 1981, and in 1983 the Visa Classic card was redesigned to include a hologram for added security against user fraud. In 1977 Visa’s market share of the bank card business was 40 percent and MasterCard International’s was 60 percent. By 1983, the market share proportions of each company had reversed, with Visa’s billings amounting to $59 billion and MasterCard’s billings to $42 billion.

Continued Expansion in the 1980s

In 1983 Hock implemented one of the most important and far-reaching services known in the credit card industry: a global network of automated teller machines (ATMs) that allowed Visa cardholders to obtain cash at locations far away from the banks or credit unions that originally issued them the card. The network provided a cash-dispensing service for travelers carrying the Visa card; after inserting the card into an ATM, the customer received cash from a bank account or from a previously established line of credit. Most of the ATMs were situated initially in places convenient for travelers, such as airports and tourist attractions, but soon ATMs were placed in banks themselves, gas stations, grocery stores, and innumerable other locations.

Visa’s ATM network was not well received by the banking industry, since many banks operated their own network of automated teller machines. The Plus System Inc., located in Denver, was owned by 34 banks, all of which were Visa members, and had approximately 950 various financial institutions that operated ATMs that only accepted the Plus card. The banks each invested up to $150,000 to exclude customers who banked with competitors. Thus, while the Plus System and other similar ATM networks worked hard to ensure exclusivity for their members, Hock was implementing a network that would be accessible to customers of all 15,000 member banks of Visa.

Dee W. Hock retired as president of Visa in 1984 and was succeeded by Charles T. Russell, vice-president and longtime employee of the company. Russell immediately defused the animosity between Visa and its member banks over the ATMs. During that year, the Visa ATM network was the first to complete a transnational transaction.

Company Perspectives:

Today, Visa offers the widest range of financial services in the bankcard industry. Visa’s diverse product line includes credit and debit cards, travelers cheques, Visa stored value cards, corporate and business cards, as well as new, state of the art products such as our online products and services, and the Visa Global ATM Network with over 457,000 ATMs in 120 countries.

Tomorrow, Visa will continue to lead the payments industry as our products and services evolve to meet the ever-changing dynamics of the marketplace. In the future, Visa will continue to advance the use of chip cards in electronic commerce, on the Internet, and in other emerging media to ensure that we remain “The World’s Best Way to Pay” for our Members and their cardholders.

Visa continued its phenomenal growth under the leadership of Russell. In 1986 Visa and MasterCard took a 73 percent share of the $275 billion worldwide charge card market, and their combined transactions totaled $3.9 billion, far more than any other financial services company.

In January 1987 Visa won a contract to operate Interlink, the largest retailer, or point-of-sale (POS), network that accepted debit cards in restaurants and stores in the United States. Already managing the California-based Interlink network of transactions since 1984, Visa was ahead of the competition in the burgeoning point-of-sale business. In February of the same year, it reached an agreement to pay $5 million for a 33 percent share in the Plus System of ATMs. By adding the 13,000 machines from Plus, the second largest ATM network in the nation, Visa provided its cardholders with access to almost one-third of the 68,000 ATMs in the United States. The Plus System was acquired completely by Visa in 1993.

One of Russell’s most important strategies to maintain Visa’s market share involved a commitment to improve the company’s communications network. Having started VisaNet in 1972, a comprehensive communications and data processing network, Russell directly supervised a $16 million transformation of the system from that of credit card transaction to general purpose electronic payment, a system capable of dealing with most types of consumer banking transactions. Aware that the continued success of Visa was dependent upon the connection between its electronic mail systems and data processing networks, Russell initiated a comprehensive redesign of the company’s data centers. In 1992 Visa converted its Basingstoke, England, and McLean, Virginia, data centers into global “supercenters” capable of processing worldwide volume from either location. This setup was made possible because Visa incorporated transoceanic fiber-optic cables to upgrade its international communications network. As a result of these improvements, a significant increase in volume occurred while the cost per transaction decreased. In 1992 the number of transactions on VisaNet reached a record 807 per second. The network is now capable of processing 1,100 transactions per second at less than a penny per transaction.

Early 1990s: Market Leader

By 1992, Visa’s Gold Card, previously the Premiere Card, had become the most widely used and best recognized credit card in the world. Indeed, by all measures of success, 1993 was a banner year for Visa. Total worldwide billings under the Visa name amounted to over $500 billion; more than 300 million cards were issued to customers around the world; more than six billion card and cheque transactions were made, with travelers cheques alone growing to a worldwide sales volume of more than $16 billion; and Visa operated more than 160,000 ATMs in 60 nations.

An aggressive marketing campaign conducted against Visa by MasterCard in 1991 and 1992 appeared to pay off by March 1993. For the first time in 14 years, MasterCard reported a gain in its U.S. market share for charge-card spending, up to 26.8 percent, while Visa’s market share decreased from 45.3 percent to 45.1 percent. The competition between Visa and MasterCard, however, was friendly because almost all the banks that owned the MasterCard association also belonged to the Visa association, and no one bank benefited from a gain in market share by one at the expense of the other.

Visa’s primary competitor for both the U.S. and international markets was American Express. Whereas the Diners Club card held a 2.2 percent market share of U.S. charge-card spending in 1992 and the Sears Discover card a 6.5 percent share, American Express maintained a 19.4 percent share and was working hard to increase it. Both Visa and American Express intensified the competition for a larger U.S. market share by using the concept of “ambush advertising” in their commercials. Visa, as one of the major sponsors of the 1992 Olympics, used its television ads to remind viewers that the Visa card was more widely accepted than American Express. American Express, for their part, featured an Olympic theme while using a clever play on the word “visa” to promote its own card at Visa’s expense.

American Express’s advertising did not gain any market share for the company. In fact, American Express lost ground in the early and mid-1990s, with its global market share falling to 13.4 percent in 1992 and down to 10.4 percent in 1995. In addition, merchants who accepted the card fell over the same period. In an effort to increase market share, American Express introduced a bank credit card of its own. Visa, however, thwarted this attempt in the United States by establishing an internal bylaw that banned its members from issuing the American Express card.

When the battle for market share refocused in Western Europe, Visa attempted to introduce a similar bylaw for its European member banks in 1996. American Express had already arranged with several banks in Portugal, Greece, and Israel to offer its card and fought the proposed bylaw through the European Commission. When Europe’s competition commissioner announced that Brussels would not accept the bylaw, Visa backed down. In June 1996 it decided not to restrict member banks in Europe from issuing cards that competed with Visa. With credit card usage on the rise in Asia, however, a similar battle was on the horizon.

New Products and Services in the Mid- to Late 1990s

In the mid-1990s Visa developed new products and services that met with varying degrees of consumer enthusiasm. In 1994 the company acquired Interlink, which provided Visa with an online banking service it could offer around the world. A joint venture with Microsoft to offer home banking services and create related software did poorly against Intuit and other competitors in its first few years.

Much more popular was Visa’s debit card, a payment option that gained a great deal of momentum in the 1990s. Payments made with the debit cards were withdrawn from the holder’s checking account and no interest payments were levied. Visa invested heavily in another new payment option, the chip-based “smart card,” with much less satisfying results. Although Visa had endorsed the chip technology in 1992, it did not offer the card until 1996. Named Visa Cash, the card electronically stored money to be used as cash. Consumers could load money onto the card by transferring money from a checking account to the card at an ATM. To encourage member banks to transfer from magnetic stripe cards to the new technology, Visa instituted the Partner Program in 1997. Tests with the card, however, were not encouraging. In a 1998 trial by Citibank and Chase Manhattan on the Upper West Side of Manhattan, consumers rarely loaded their cards a second time. “Smart cards are a technology chasing a business case,” Richard Speer, CEO of the financial consulting firm Speer & Associates, told the New York Times in 1998.

Visa encountered a couple of setbacks in 1997 related to new shopping services on the Internet. Visa and Yahoo, the largest Internet search engine, had reached an agreement to jointly develop an Internet shopping site. Yahoo canceled the agreement in September 1997, costing them $20.5 million. The same year Visa postponed the full introduction of a secure Internet purchasing system. The system, dubbed the Secure Electronic Transaction (SET) protocol, would make electronic money transactions safe through the use of encryption, digital certificates, and digital signatures. In August 1997 Visa began the world’s largest pilot program for secure electronic commerce using the SET protocol.

In 1998 federal regulators filed an antitrust suit against Visa and MasterCard, charging that their bylaws preventing member banks from issuing competing cards were creating an uncompetitive marketplace. Visa fought the suit, claiming intense market competition existed. “We believe the suit filed today by federal regulators will fail in a court of law,” Paul Allen, executive vice-president and general counsel for Visa U.S.A., said in a press release. “Because, when it comes right down to it, consumers have unlimited choices when it comes to credit cards.”

In the late 1990s, Visa’s focus was on developing its foreign operations, increasing its debit activity, and improving its technological infrastructure. Despite problems with its electronic cash card, the introduction of its SET protocol, and the federal antitrust suit, Visa operated the largest and strongest consumer payment system in the world.

Further Reading

Desmond, Edward, “Yahoo: Still Defying Gravity on the Web,” Fortune, September 8, 1997, p. 154.

Garfield, Bob, “AMEX vs. Visa—Round 2: The Agony of Ambushing,” Advertising Age, July 20, 1992, p. 44.

Hansell, Saul, “Got a Dime? Citibank and Chase End Test of Electronic Cash,” New York Times, November 4, 1998, p. Cl.

Louis, Arthur M, “Visa Stirs Up the Big Banks—Again,” Fortune, October 3, 1983, pp. 196-203.

“A Punch-Up in Plastic,” Economist, June 8, 1996, pp. 77-78.

—Thomas Derdak

—updated by Susan Windisch Brown

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

beatty, sally goll. "american express to boost its attack on credit card of arch-rival visa." the wall street journal, 14 february 1997.

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

——. "visa pulls further ahead in volume, market share." american banker, 17 april 1998.

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

gaudin, sharon. "visa boosts java's credit line." computer-world, 4 august 1997.

khan, mir magbool alam, and rochelle burberry. "how smart is it to use new smart cash cards?" advertising age world brands supplement, september 1996.

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

"vietnam's biggest bank becomes a visa issuer." american banker, 30 april 1998.

"visa international." hoover's online, may 1998. available at http://www.hoovers.com.

visa international. report: january 1997. san francisco, ca: visa international, 1996.

visa international. "the world's leading consumer payment system international backgrounder." san francisco, ca: visa international, february 1997.

For an annual report:

write: visa international, 3155 clearview way, san mateo, ca 94402-3798

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. visa international's primary sic is:

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