Amid all the disruption in financial technology, no one has been able to touch the card networks.
Visa Inc. V, +0.81% and Mastercard Inc. MA, +0.80% continue to charge ahead, with their stocks trading near record highs as the payments giants find new ways to enlist newcomers in their fight against cash and check. PayPal Holdings Inc. PYPL, +0.63% was once thought of as a threat to the card companies, but partnership arrangements struck a few quarters back mean that Visa and Mastercard stand to benefit from PayPal’s growth.
On its latest earnings call, Visa highlighted a number of partnerships for instant-deposit options, which enable merchants using products from Square Inc. SQ, +2.67% and others to not only accept card payments, but also receive funds instantly—sent directly to their debit cards in a sort of reverse swipe.
MarketWatch recently chatted with Visa Chief Financial Officer Vasant Prabhu about how the company is taking advantage of new ways to pay that go beyond swipes and dips. These include QR-code readers that are helping expand Visa’s customer base in emerging markets and commercial options that allow businesses to pay their suppliers.
Excerpts of the conversation with Prabhu follow, edited for clarity and length.
On the consumer side, the overwhelming majority of payments are still done in cash. What are your plans for converting those payments to electronic forms?
On the acceptance side, it was expensive doing things the old-fashioned ways to get merchants up and running with dedicated terminals. Now with smart devices, the merchant can be up and running from an acceptance standpoint either with a dongle, which is the solution you’ve seen in the U.S. with Square, or with QR codes, which is a popular solution in emerging markets. This makes it much cheaper and faster to get merchants to accept cards. A lot of governments are becoming very interested in taking cash out of their economy. Cash in the economy can be bad because it often causes government transfer payments to not make it to people that they’re supposed to get to. Many are looking to card-based methods to get payments to people and promoting card usage in general to bring more people into the banking system.
How will payments evolve in the U.S.?
A new thing that’s making it easy to use cards at the point of sale is contactless, which is big in markets like Australia and the U.K. It really hasn’t been tried in a big way in the U.S. because it takes two parties to make it work. Soon, if you’re getting new cards, you’ll see that your new card will have a little logo on it that says that it’s enabled for contactless. At the point of sale, the merchant devices have to be enabled for contactless. We’re working with both merchants and with the banks in the U.S. to make that happen.
How are things progressing with Visa Europe?
The integration has gone well so far. We’re two years into it. The accretion from the acquisition is running ahead of where we thought it would be. We expected low-single-digit accretion in the first year, and we ended with mid-single digits. We’ve finished a very complicated and long process of shifting important customers from what used to be the old relationship they had as owners to a commercial relationship with us that includes various incentives to drive volume. Now we’re in the technology integration phase. We’re in the process of integrating authorization systems and once that’s done, we’ll have Visa Europe on the global platform. Right now, we’re well-positioned to go on the offensive.
Traditionally, payments companies focused on retail and other consumer-to-business spending. How is Visa going after business-to-business payments?
We are the largest player in the card-based b-to-b space, so these are corporate cards, procurement cards, virtual cards and things that are used by businesses to pay and be paid. Then there is the more broad b-to-b space where people are in the business of paying suppliers. Those require somewhat different solutions that are often tailored depending on the segment you’re serving. In addition, we have a new service called Visa Direct that allows money to flow both ways in our network so you can not only move money out of an account but you can move money into your account using your debit credentials. Visa Direct is a very valuable service for a lot of b-to-b applications in the gig economy for example. You can opt to be paid on your debit card for disbursements. Insurance payments can be paid to you not through a wire or check, but through your debit card.
What’s the advantage to a company of sending money this way?
The advantage is speed and certainty, and then you get the security and reliability that the Visa network provides. There are also cost savings for businesses to do it this way rather than via a check or a wire transfer. A lot of companies we work with initially tend to have new business models and since they don’t have already established methods, they are looking for new ways to transfer money. Where there are well-established business models and ways to pay, you have to go in and persuade them about why this is better. In the insurance disbursement space, it’s considered a competitive advantage if they can get the money to you faster than another insurance company.