VISA

[SharperDingaan]

It is useful to think in terms of the engineering model of Input => Process => Output.  Substitute business parameters to arrive at Management (Input) => Operations (Process) => Sales (Output).  From the marketing perspective; Operations is the target, Management the target market, Sales are unaffected. Block chain does not change the end product, it just produces it differently.

 

Much of the dissonance is because there is no change to end product; including no price reduction as a result of block chain cost saving. The gain is captured entirely by management & shareholders –through higher profitability, & lower operational break even points.  In a sales driven organization (V/MC), you might expect much of that saving to ultimately get passed on to the end buyer. Not going to happen in a bank - to anywhere near the same extent.

 

SD

 

 

[LongTermView]

I don't have a position yet.  This seems like a good point:

As I have said before getting the expensive item you want NOW on credit is a lot cooler then waiting to save up and use google to pay.

[orthopa]

This out today and seems pertinent.

 

http://finance.yahoo.com/news/why-apple-wants-unprofitable-world-130003755.html

 

Looks like the article thinks ATM companies and companies that deal in cash are at risk the most but then at the end says Visa could lose market share. This all depends on significant user uptake by Apple Pay users which is down 50% on black friday compared to last year at 2.7% of transactions.

 

Visa didnt respond for comment but at a minimum this inquiry should get them aware of the risk.

 

 

[ZenaidaMacroura]

from: (article not particularly relevant)

http://www.bloomberg.com/features/2015-gravity-ceo-dan-price/

 

Was reading about the guy who pays all his employees a minimum of $70,000 the other day -the article isn't really relevant except for this part:

 

The day-to-day work at Gravity Payments is pretty unglamorous. Gravity is a middleman between merchants and payment networks, namely Visa and MasterCard, which in turn connect to banks that issue credit cards. If you use a credit card to pay for a Habanero Soft Chicken Burrito at a Taco Time in Seattle, it’s Gravity that helps move $6.29 from your bank to the restaurant’s, keeping a sliver for its service along the way.

 

Gravity’s finances aren’t public, but Price says gross revenue was $150 million in 2014 and will rise to an estimated $200 million in 2015. But Gravity doesn’t get to keep the bulk of that revenue; it must automatically pass most of it on to credit card networks and issuers. The amount the company retains—net revenue, which Price calls “probably a more relevant figure”—was $16 million in 2014, he says. Gravity’s 2014 profit was $2.2 million, Price adds.

 

What exactly do these payment processor companies do for a small business?  There seem to be a lot of them popping up in the limelight recently -do they basically handle what a bank might do with regards to merchant acquisition?  If a small businesses already has a merchant/business account with a card issuing/merchant acquiring bank are payment processors kind of redundant?

 

It seems V/MA take relatively little versus the brand power/trust they bring to the table.  Other aspects of the payment value chain seem to have "fatter" share of the interchange fee (thus are more susceptible to disruption).  And even then it would necessitate a "capacity to suffer" in order for Goog/AAPL/AMZN to get to critical mass.  I think AMZN might be the only one who's proven that willingness...

[rishig]

I was out on vacation and was avoiding looking at CoBF.

 

Lots of comments on the thread on disruption of Visa/MasterCard. I am long (although I recently reduced my position size, but not because of the disruption risk):

 

(1) Visa/MasterCard provide tremendous value for a very low cost. Cost is lower than 10 bps. Most of the value is passed to the banks issuing credit / debit cards.

(2) For the larger banks, Visa/MasterCard make most of the money on the acquirer side. In fact, from my understanding talking to industry experts, on the issuer side Visa/MasterCard make probably 1-2 bps from the large money center banks. JP's ChasePay deal is structured for Visa to make a big fat 0.

(3) On the debit side, Durbin Amendment caps the interchange fee to 12c. So, effectively they have killed any scope of meaningful competition in the debit space.

(4) On the credit side, there could be new "innovative" issuers, but the large money center banks control 80% of the market share. And Visa/MasterCard are the low cost providers. So why would they want to invent new "rails" when the current one works well.

 

Some of these new technologies will gain some traction over time, but they are niche at best. In my opinion, risk of being disrupted is far fetched. (SD will surely come back with a reply to this with some mumbo jumbo that I don't cannot rationally argue with).

 

Now, in my mind the real risk is the following:

(1) Visa/MasterCard/Amex have gotten into a price war recently. ChasePay, Costco, USAA deals are evidence of this. I am concerned that Visa/MasterCard will continue to see price compression on the issuer side and Amex will probably lose a bunch of deals.

(2) Visa/MasterCard margins have been healthy despite this because they have continued to raise prices on the acquirer side.  The debit interchange fee contraction has given a relief to the merchants, so the increase on acquirer side by Visa/MasterCard is not noticeable. But, it does not seem like a good strategy in the long term, and I think pricing will drop in the longer term.

 

Visa seems the most aggressive among the three. Although I need to get more data on this.

 

[Jurgis]

(1) Visa/MasterCard/Amex have gotten into a price war recently. ChasePay, Costco, USAA deals are evidence of this. I am concerned that Visa/MasterCard will continue to see price compression on the issuer side and Amex will probably lose a bunch of deals.

 

Anecdotally it seems that MC pretty much lost most US. I always try to have at least one MC just in case (haha) some place does not take Visa. Through years, pretty much all big US banks switched to Visa usually without even telling me. I've got Barclays MC, but that's pretty much it. There might be smaller US banks still offering MC.

 

AFAIK situation is different internationally. It seems MC is more prevalent. I don't know if it will change now that Visa got Visa Europe.

 

I've already written about AXP on AXP thread, so no point rehashing. I agree with rishig's opinion.

[physcdisp]

rishig: thanks for the comments.  The new management installed at the top of VISA do not seem to play mostly duopoly market well.  The market seems to probably is assigning high valuations assuming that the current market dynamics to continue.

[merkhet]

rishig: thanks for the comments.  The new management installed at the top of VISA do not seem to play mostly duopoly market well.  The market seems to probably is assigning high valuations assuming that the current market dynamics to continue.

 

This reminds me a bit of the whole Coke & Pepsi thing from Greenwald's "Competition Demystified."

[LC]

(1) Visa/MasterCard/Amex have gotten into a price war recently. ChasePay, Costco, USAA deals are evidence of this. I am concerned that Visa/MasterCard will continue to see price compression on the issuer side and Amex will probably lose a bunch of deals.

 

Anecdotally it seems that MC pretty much lost most US. I always try to have at least one MC just in case (haha) some place does not take Visa. Through years, pretty much all big US banks switched to Visa usually without even telling me. I've got Barclays MC, but that's pretty much it. There might be smaller US banks still offering MC.

 

Really? My citibank and capital one cards are both MC. And they are both recent (<5mo old).

[rishig]

(1) Visa/MasterCard/Amex have gotten into a price war recently. ChasePay, Costco, USAA deals are evidence of this. I am concerned that Visa/MasterCard will continue to see price compression on the issuer side and Amex will probably lose a bunch of deals.

 

Anecdotally it seems that MC pretty much lost most US. I always try to have at least one MC just in case (haha) some place does not take Visa. Through years, pretty much all big US banks switched to Visa usually without even telling me. I've got Barclays MC, but that's pretty much it. There might be smaller US banks still offering MC.

 

Really? My citibank and capital one cards are both MC. And they are both recent (<5mo old).

 

MasterCard signed a 10 year deal with Citi in Mar 2015:

http://newsroom.mastercard.com/press-releases/citi-and-mastercard-sign-new-global-agreement-that-expands-relationship/

[Jurgis]

Ah, yes, Citi. Missed that one.

 

I have Capital One and it's Visa. Maybe they offer both. Maybe they will stealth-switch either mine or yours.

[rishig]

Barron's has an article on threat to blockchain by Visa/MasterCard:

http://www.barrons.com/articles/watch-out-visa-and-mastercard-here-comes-blockchain-1448691510

 

My take is that the large money center banks that control 80% of the credit / debit are getting a very good deal from Visa/MasterCard. They have no reason to abandon that for an alternative, at least not anywhere in the near term. In the longer term, no reason Visa/MasterCard could not be the VeriSign of payments.

[tengen]

I'm not 100% sold on blockchains, maybe because I work in software development and I keep reading about encryption schemes being broken or having flawed implementations. So I'm a bit skeptical of trusting my $$ to an encryption key. However, I see it has the potential to disrupt V's current payment processing model in the long term. On the other hand, I think the timeline will be measured in decades, not years.

[wachtwoord]

I'm not 100% sold on blockchains, maybe because I work in software development and I keep reading about encryption schemes being broken or having flawed implementations. So I'm a bit skeptical of trusting my $$ to an encryption key. However, I see it has the potential to disrupt V's current payment processing model in the long term. On the other hand, I think the timeline will be measured in decades, not years.

 

Only 1 blockchain right now is any good. Dont let the banks convince you on their private BCs. Without the decentralized nature a blockchain is just a bloated way to store transaction data.

[orthopa]

Looks like Visa is getting into tokenization

 

http://www.bidnessetc.com/59298-visa-inc-brings-token-service-to-asia-pacific/

 

http://www.mobilecommercedaily.com/visa-introduces-token-service-to-top-off-mcommerces-fruitful-year

[orthopa]

Visa testing blockchain technology now as expected.

 

http://seekingalpha.com/news/3206533-visa-looks-harness-blockchain-technology

[LongTermView]

https://www.wsj.com/articles/alibaba-and-tencent-set-fast-pace-in-mobile-payments-race-1506072602

Now, Paytm is used in India to pay for items from roadside hawkers, rides from auto rickshaws and more. Sellers don’t need special gadgets beyond the QR code, which transfers money from a buyer’s mobile account into the vendor’s. Paytm in May raised $1.4 billion from Japan’s SoftBank Group Corp.

 

Alphabet Inc.’s Google on Monday launched its own mobile-payment smartphone app in India, which people can use to transfer money to individuals and businesses without the use of a credit or debit card. Meanwhile, Alibaba and its affiliate Ant Financial have invested in Thailand in a financial-services company called Ascend Money.

 

How does this impact Visa and MasterCard?

[Shooter MacGavin]

competition is always prevalent but it's a big market.  Visa and Mastercard's clients are financial institutions and they do all the marketing.  Financial institutions are incentivized to get people to use credit for payments and the providers of credit are banks. 

 

I suspect there will be multiple acceptance points at vendors and multiple payment mechanisms in India.