Visa's Vision adopt Kalysis's Vision
Fecha Miércoles, septiembre 04 @ 11:30:49
Tema Pago Electrónico :: e-Payment
| "Credit is boring. It's yesterday's news," says Carl Pascarella, chief executive of Visa USA. "Our goal now is to displace cash and checks. We're not a credit card company, we're an electronic-payment company."
The world's top credit card company now aims to rule all forms of electronic payments, even handling commercial purchases of up to $10 million. But first its computers need an overhaul.
Swipe your Visa card at a store in Sydney, Australia, and you trigger a pretty amazing sequence of events. The 16-digit account number stored in your card's magnetic stripe zooms across a leased phone line to the merchant's bank, zips under the Pacific to Visa's data center outside Tokyo and rides the Visa network to the data center of your issuing bank in Delaware. It authorizes the transaction and sends bits whizzing back, a 24,000-mile roundtrip journey that involves five stops plus a calculation of how much to charge the merchant in fees and how to divvy up those fees among the banks. Elapsed time: two seconds.
By The Numbers
4,000 Maximum transactions Visa can handle per second.
35 billion Total transactions Visa system handled last year.
$2.3 trillion Dollar volume handled by Visa last year.
9 million Miles of cable in Visa's global network.
8 Minutes of total downtime Visa system has suffered in past 5 years.
7 cents Amount Visa loses to fraud on every $100 in volume.
$1 million the largest single consumer purchase using a Visa card was a jewelry purchase in London.
Few systems on Earth can do this. Visa can do it 4,000 times a second and did it 35 billion times last year, riffling through more transactions in an hour than all of the world's stock exchanges do in an entire day. Last year Visa pumped $2.3 trillion through its 9-million-mile matrix of fiber lines, and in five years it has suffered only eight minutes of downtime, better than most any other system on the planet. So why is Visa overhauling the whole shebang, at a cost of more than $200 million? Because technology is everything in the battle for control of consumers' wallets. Technology explains how Visa has gained so rapidly on printed paper money as a medium of exchange, and it will determine whether Visa can hold its own against newer forms.
Pascarella's push to supplant greenbacks is as much a defensive move as an offensive foray. Visa's old credit card business is under attack. Credit cards still make up just over half of Visa's annual volume, but in the past five years that business has grown at a 7% annual clip versus 42% for debit cards. Worse yet, while Visa still dominates the credit card industry, rival MasterCard is catching up in the U.S. By next year MasterCard will have more credit cards issued in the U.S. than Visa does, according to the Nilson Report, which tracks the industry.
Meanwhile, Wal-Mart and other big merchants are suing Visa, trying to drive down its fees (see down the article). Visa and its banks skim close to $30 billion a year in fees for letting consumers spend their money, and that largesse is a prime target for a raft of upstarts and financial titans. Myriad rivals are intent on sidestepping Visa and its fees, which average 2.08% but go as high as 11% for some online purchases. Citigroup's C2IT lets people pay one another over the Net, avoiding the Visa network and its tolls. Certapay, a joint effort of four Canadian banks and MasterCard, is creating a new Internet-based payment network.
"Visa was a revolutionary company--30 years ago," says Peter Thiel, cofounder and chief executive of PayPal, a fast-growing Internet payment service, which agreed in July to sell itself to Ebay for $1.4 billion in stock. PayPal has signed up 18 million members and adds 28,000 more each day. Half of PayPal's 300,000 daily transactions are made without ever touching a credit card network, thereby avoiding the fees.
Pascarella reckons Visa's network can be his savior. He says Visa has a great brand, a huge network and one of the most powerful, reliable computer systems on the planet. So why not use Visa for everything? In ten years Visa's dollar volume and transaction volume has grown fivefold. Pascarella aims to boost Visa's transaction volume tenfold by 2007.
At that rate, the credit card giant would eclipse the U.S. Federal Reserve as the world's premier toll-taker in the currency business. The Fed turns an annual profit of $28 billion by printing dollars--that sum representing the value of the interest-free loan the government gets by dint of the fact that the public keeps cash on hand. There was a time when commercial banks competed in the business of issuing paper dollars.
In 1971 the Fed gained a monopoly in this lucrative trade, but that does nothing to stop an electronic alternative to greenbacks.
While banknotes remain the medium of choice for drug dealers and people dodging taxes, for above-ground transactions they are technologically inferior. Notice how cashiers these days pause to hold your $20 bills up to the light to catch counterfeits? A Visa computer can detect a stolen card much faster than that. Using your Visa card instead of cash also saves you a trip to the bank teller machine. What you see at work now is a sort of reverse Gresham's law: Good technology drives out bad.
House of Cards
Dirk Smillie, 09.16.02
Before Visa creates a cash-free society, it might have to deal with a cash crunch of its own. An antitrust trial set for next April aims to crimp its debit card fees and seeks billions of dollars in damages.
The nation's biggest retailers, led by Wal-Mart, Sears, the Limited, Safeway and Circuit City, filed a class action in 1996 in U.S. District Court in Brooklyn, N.Y., charging that Visa is trying to monopolize the debit card market with its "Honor all cards" rule. It forces merchants who accept Visa credit cards to accept Visa's branded debit cards; MasterCard has an identical rule and is named as a codefendant in the suit.
Visa and MasterCard now own two-thirds of the debit card market, which totaled $414 billion in retail sales last year compared with $1.4 trillion for all credit cards. U.S. retailers, representing 4 million merchants, say they are forced to pay "inflated" interchange rates and want more competition.
Retailers typically pay a fee of 2% of the transaction price for Visa credit card and debit charges alike. They pass on the cost to consumers, but say it isn't fair for Visa to charge so high a rate for debits. Interchange fees cover banks' fraud, float and card issuance costs, but debit cards, which require a consumer's four-digit PIN code for every transaction, produce little fraud and carry no float. Debit networks such as Star and Accel charge only 0.3% per transaction.
"Setting the same interchange rates for both types of cards is a massive price fix," says Lloyd Constantine, 54, the retailers' lead attorney.
The plaintiffs argue they are entitled to $13 billion to $15 billion in fees that Visa and MasterCard have wrongly charged them since 1992; triple that for an antitrust verdict and the card giants would owe about $45 billion. Visa says it charges 2% to cover of the costs of protecting a cardholder who wants to renege on a purchase. Visa calls the $15 billion damage claim "hugely inflated" and says it is intended to threaten Visa's member banks.
So far lawyers in the case have taken 430 depositions, compared with 80 in the Microsoft trial. Constantine's file cabinets are bulging with some of the 5 million pages of documents that have been filed. In June the U.S. Supreme Court refused Visa's and MasterCard's petition to challenge the suit's class-action status. A Brooklyn jury will begin hearing the case next April.
David Balto, a partner at White & Case in Washington who isn't directly involved in the Visa fight, says the retailers have a pretty good case but adds Visa may prevail in practice. He predicts Visa will halt its "Honor all cards" requirement, but the fix will come too late; its grip on debit cards is already entrenched.
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