Visa Looks To Usher in a New Era of Understanding with Merchants And Government

Working closely with merchants, card issuers, and merchant acquirers to deliver more value through its brand at the point of sale, as opposed to enhancing revenues through price increases, is the road map Visa Inc. laid out Thursday at its Investor Day conference.

“We don’t feel we have to raise prices to get the revenue growth we think we should, we want to compete on our capabilities and build the business in a way so that price is not the lever we  have to pull for growth,” Visa chief executive Charles Scharf told analysts at the tri-annual event.

A key component of Visa’s growth strategy is mending its tattered relations with merchants and government. Merchants have long complained about high card-acceptance costs, and as the largest payment-card network, Visa frequently is the main target of their ire. The U.S. Department of Justice is investigating Visa’s debit card pricing, and the Federal Trade Commission reportedly is looking into the card networks’ rules.

Scharf extended an olive branch to Visa’s opponents by suggesting that one of the reasons Visa and the card industry have come under such scrutiny by federal regulators is that both failed to engage and educate merchants, legislators, and regulators early on about the value of debit and credit card acceptance at the point of sale and the value the Visa brand brings to the table.

“The underlying problem … is that merchants across this country talk to politicians about their unhappiness,” Scharf said. “All this talk of working together to [provide products and services that are] adaptable, flexible, and bring added value is targeted at getting at the underlying issue, not trying to address it after the fact. If we try to address the underlying issues after the fact, we will always lose.”

Scharf–a former top JPMorgan Chase & Co. executive who made repairing merchant relations one of his top priorities since taking over the Visa CEO job a few months ago from Joseph Saunders, who retired–emphasized that he felt it is not too late for Visa to change its dialog with merchants. As a caveat he added, “we are not naïve; it will take time to change it.”

New products that help merchants facilitate sales to consumers and add value to both Visa’s brand and that of the card issuer and merchant acquirer are at the top of Visa’s to-do list. One product Visa is betting on is its V.me digital wallet, which lets registered cardholders pay for online purchases by clicking on the V.me option on the merchant's checkout page.

Visa’s immediate plans for V.me are to focus on making the wallet a premier product in the United States, which is the largest e-commerce market, then rolling it out to Australia and Canada, followed by rollouts in Asia and Latin America. “The U.S. is an e-commerce market we must win,” said Sam Shrauger, global head of commercialization.

So far, 86 card issues in the U.S. representing 49% of Visa’s U.S. card accounts have committed to V.me. Issuers include Bank of America, U.S. Bank, and PNC. On the acceptance side, 240 merchants representing $25 billion in e-commerce volume have signed up for V.me, 35 of which are live.

Also coming out are products that leverage Visa’s transaction data to reduce the risk of fraud in online transactions and enable issuers and merchants to deliver personalized marketing messages to consumers via a mobile device. One is Visa Customer Authentication, which launched in late 2012. The service allows card issuers to capture identifying information from the personal computer or mobile device used by a Visa cardholder to cross-match that data with records in the Visa network indicating whether the device and the same account number have been used previously to make an online purchase. “When the match is positive, the chances of the transaction being fraudulent are quite low,” said Silvio Tavares, Visa’s head of global information products. A top-five card issuer in the U.S. is using the service, he added.

Plans are also in the works to expand issuer adoption of the Visa Offers platform, which allows issuers to track cardholder behavior and historical spending patterns on their Visa cards and send customized offers in real time through mobile devices to the cardholder based on their proximity to a merchant. Visa also is developing applications that show merchants what portion of their digital marketing is generating in-store sales by Visa cardholders, according to Tavares.

When asked about potential fallout from its recent deal with JPMorgan Chase to license a version of Visa’s network so that Chase’s acquiring operation can directly process transactions from holders of Chase-issued Visa cards when they make purchases at Chase merchants via the new Chase Merchant Services entity, Scharf said that if nothing else it has gotten acquirers and issuers thinking about new ways to work more closely with merchants. “This does not diminish the Visa brand,” he said. “When we say we are working with merchants, this does not mean we are cutting acquirers out.”