Visa Inc. says its size will help it succeed in launching its own digital wallet, a market where many established payment companies have learned that bigger isn't always better.
Visa says its position as one of the world's top card networks will set it apart with its new alternative payment product, which allows consumers to make online or mobile purchases with a user name and password, instead of typing in a card number for each payment. The account associated with the digital wallet does not have to belong to a Visa card.
This product resembles American Express Co.'s recently launched Serve, as well as a multitude of efforts that failed a decade ago despite strong backers like Citigroup Inc. and Wells Fargo & Co. The banks' alternative payment offerings were unable to keep up with then-upstart PayPal Inc., which today has more active accounts than any U.S. bank has retail customers.
Visa insists that it is fundamentally different from any bank that has tried this approach before.
"What's different is that it's Visa," said Jim McCarthy, Visa's head of global products. "We are not an individual bank," and even giants like Citi and Wells "didn't have the ubiquity and the scale that we do."
PayPal, a unit of eBay Inc., thwarted Citi's c2it and the Wells Fargo/eBay collaboration Billpoint by breaking free of the trappings of traditional payments. Experts say Visa's digital wallet, however, is still very much tied to the mainstream payments world — particularly since Visa intends to use banks as an enrollment channel.
"They are saying: 'Look, we are Visa and our primary customers are still the banks,' " said Thomas C. McCrohan, managing director for equity research at Janney Montgomery Scott in Philadelphia. "Apple and Google aren't going to talk to the banks, now Visa is helping the banks maintain their turf and bring more people to the table … all the teams are putting their jerseys on so you know who's on whose team."
Brian Riley, a research director in the bank cards practice at TowerGroup, said Visa "is in reaction mode. I think that American Express' Serve caught a few people off guard" when it was announced in March. "They are going right into MasterCard and Visa's sweet spot."
Gwenn Bezard, co-founder and research director at Aite Group in Boston, said, "I don't see Visa as having a track record of building consumer-facing products, and the main challenge they have is just their ability to do that."
However, Wedbush analyst Gil B. Luria said that Visa is fundamentally different enough from banks in consumers' minds that it may not face some of the challenges the early PayPal rivals did.
"Visa probably has a better chance of being successful, because Visa is more of a technology company — Wells and Citi are not," he said.
Visa's virtual wallet, set to be released this fall, will rely on a new type of payment that Visa plans to market through its CyberSource Corp. subsidiary (which it bought last July), and its merchant acquirers. Visa is also working with other technology providers, such as CPI Card Group, Inside Contactless and NXP Semiconductors, to test mobile contactless payments.
McCarthy said Visa will make DeviceFidelity Inc.'s technology, which it is testing with several banks for mobile payments, commercially available this summer.
Eventually there will be a smartphone app that will run in conjunction with Visa's digital wallet, McCarthy said. For now, the wallet can be managed from PC and smartphone Web browsers.
