Rumors of the fate of Visa Interactive had been circulating for months. In the end, its sale to Integrion Financial Network by Visa International would free the card association to sharpen its global strengths, specifically cards and payments, says president and CEO Edmund Jensen, a Hawaii native and one-time Dole Food Company, Inc. executive. Following are excerpts from a recent interview on Jensen's ambitions for Visa's evolution.
MS: Did your years at Dole and other non-financial firms foster skills that have been useful in banking?
Jensen: There's no doubt, from two perspectives. One, some of the companies that I was given to run were in tough financial shape, so I was on the other side of the table from banks. Ironically, I dealt with commercial finance companies as a customer and later I started a commercial finance company.
The other part is that banks have to be populated with traditional bankers as well as newcomers. The mix is very important; not over-balanced one way or the other because there's a different attitude toward (entrepreneurship) and risk. And there's a different attitude toward innovation and creativity. That balance of things is very good; I think I helped that balance at Visa.
MS: Where is Visa today and how can it provide new value to bank- members?
Jensen: It's really important in our industry to understand that we haven't written the last chapter of the old era. I'll give you a small example: We have a product called Visa Travel (Money). It's an electronic travellers check; it has a magnetic stripe and you buy it like a travellers check. The funds are held centrally and you can take your funds from almost any ATM in the world. It's a very basic and fundamental product. Now let's jump to Latin America or other countries with a large unbanked population. In the Latin America region, we determined that we can use existing technology to meet customers' needs. So we're going to take Visa Travel Money and move it to the point of sale; when you move it to the point of sale, that means the person who doesn't have a bank account can still have some relationship with the bank.
In addition, that relationship could be in another country. So that will provide the mechanism for people working in the U.S., say, to transfer money to relatives, in a very simple way, by making deposits here. We don't need to go to new technologies to provide that kind of product. We don't have to put a chip on a card,for example, to do that. So we're not even close to exhausting the value of the existing infrastructure for existing products. And that's very important.
Another example of that-and one of our primary objectives-is to increase acceptance, particularly electronic acceptance. So what we've done in Brazil in the last year is still part of the old model. We've helped the banks create an acquiring company, which has significantly increased the number of merchants accepting Visa cards, significantly increased electronic authorization in that country, significantly increased the value of the brand in that country and has increased profits, which is our fundamental mission. We're winning today because of the focus on the fundamentals, such as number of cards and usage of cards. We're focusing on that in all regions.
MS: So Visa must grow the number of cards issued, as well as increase acceptance and usage in all markets?
Jensen: Visa's long-term success can be measured in terms of brand preference. The reason that we can be useful to our members is because we bring the power of that success-really the members' success-to the table. This is very helpful in terms of leveraging alliances for the benefit of members. But that model-the role of Visa-can shift in the future. And the future can be very confusing.
MS: How is the emergence of alliances such as Microsoft-First Data Corp. driving Visa to extend its model?
Jensen: Those potentially threatening alliances might be potentially useful alliances for Visa also. It's not clear today. This new form of competition is very useful to encouraging and stimulating Visa in one direction or another, and it's very useful to the industry. There's just no doubt in my mind. My point is that there seems to be a lot of strategic confusion. But as I look to what's going to be important to payments in the future, it's simply two things: smart cards and the Internet. The use of the Internet for payments in the next five to ten years is going to explode. The Internet is a network that can transfer payment information, and, at some point, it will play even a role at the point of sale. If we're talking already about the Internet playing a role in bill pay, what difference is there between bill pay to a distant merchant, vendor or biller, or one that you're standing across the counter from? And so we will see extensive use of the Internet as a network for payments. That has potential impact on global systems that Visa and MasterCard, but also provides some potential, significant opportunities to look longer term for organizations like Microsoft-First Data Corp.
MS: Where does Mondex fit into all of this?
Jensen: If you stand back and look at the functions that the Mondex people say will be on the chip, it's full payment functions; it's not only stored value, although that's all that exists today. Mondex is really another acceptance brand that's being introduced to this world, and it's a brand that will clearly compete with its owner-MasterCard-if it's successful the way the Mondex people want it to be, or it will have to be merged. One or the other. So now we'll have Visa, MasterCard, Discover, Amex and Mondex out there. That has to be its ultimate success because, first of all, I don't believe the transfer of money from wallet to wallet will be in demand when the other form of technology is driving us to more on-line, centralized transactions. What I need as a consumer is convenience.
MS: Isn't it Visa's job to help banks define their roles in the payments arena as new competitors emerge?
Jensen: It is important for us to help the banks find clarity. However, it's important for us to first have clarity because if we chase too many rabbits and we talk to all of the banks about all of the various rabbits we chase, then we create confusion. In the past few years, we have probably pursued too many avenues.
MS: In retrospect, is Visa Interactive one rabbit that you shouldn't have chased?
Jensen: It's more of a tiger that we chased. We put a stake in the ground for remote banking and bill pay and, in retrospect, it was a diversion.
MS: What prompted Visa to go down the Visa Interactive path?
Jensen: At the time that we went down that path, we felt that remote banking was going to be extremely important. And, of course, we were right. It was very early in this age of enlightenment with respect to new channels in banking. It had begun, but it's really accelerated in the four years since. We felt that there was a natural tie to the kinds of things that Visa did. And we also thought the client/server technologies being used were technologies that we needed to know more about for the future. Perhaps some of those technologies, especially in the bill payment side, would flow some time in the future at the point of sale. We had significant indication of the need to provide bill pay and remote banking; members wanted this. Meanwhile, there was a huge industry wake-up call, including a trumpet call that banks are dinosaurs. Banks got together and wanted to head off the pass with Integrion. The business is very much a scale business; economics wouldn't work with Visa Interactive if Integrion diluted scale. Now it was clear that banks can-and want-to do it on their own. Visa Interactive no longer fit in with our long-term strategy, and the banks' strategy also changed. Our strategy is to enable banks; in the end, we have accomplished this with the sale of Visa Interactive.
MS: So this signals a new era for Visa in cards, usage, and so forth?
Jensen: And brand, risk, rules, standards. (Visa Interactive) was a diversion. Exiting that business definitely signals a focus on our core roots and role in the payment business: brand and payment systems. If we tried to form a Visa or a MasterCard today, it would be impossible because there are 20,000 banks that all have to operate as a joint venture. Small bank joint ventures where the (institutions) cooperate for some common purpose are very difficult at best; very few succeed. To try to bind the whole world of 20,000 banks together with a set of rules of behavior about how they relate to each other, with a common brand and with a systems investment that connects all those banks, merchants and customers, would be impossible to start today in this environment. But the fact is that it exists, and, within it, exists a core role. One of the roles is to establish rules of behavior and standards, including technology (ones to create) interoperability and connectivity. So the ability to manage risk globally-since fraud travels-is a very important function of the association.
MS: What about brand?
Jensen: One of the primary ways that brand will add value in the future is that it will be the trusted third party, which, in a more virtual world, is going to be more important than ever. In this world, brand will be as important as in the physical world.
MS: Banks aren't known for building brand like consumer products companies. What can they learn from the Doles of the world?
Jensen: It's a very important question with respect to Visa. There are banks around the world that are concerned about the strength of Visa's brand and, therefore, the weakness of their own brands. Therefore, that perception is a big concern of ours. Our intent never was to make the Visa brand mean relationship (to customers). We didn't design it that way and don't want to see it that way. We want it to mean acceptance, or maybe we'll add value later on. We don't want our brand to intrude into the bank-customer relationship, or even be perceived that way.
Why has it been easy for banks to be successful and yet not develop their brand to the extent that consumer products companies have? Part of the reason is that consumers have, in the past, often chosen their banks because of the convenience of branching. Through that account relationship, I have a locked-in loyalty simply because it's too difficult to think about changing. And, to some extent, there has also been some regulatory protection for banks. So they did not have to compete in a branded way in the past, but on convenience and price. The opportunities to compete on a brand as well are increasing. The reason is because of what technology-all technology, whether it's database management or using a universal banking card for access-is going to provide. More and more banks are going to be able to differentiate their services from other banks. Plus, as we move into the virtual world, it's not only Visa that's going to be a trusted third party, but a trusted third party will have to be the bank itself. So bank branding will take on increasing importance.
MS: How will the consumer payments business change for banks?
Jensen: As we look into the future, the payment system will be an on- line, electronic system. That means that all transactions point to where the source of funds are, to the extent that the source of funds are deposits. We tend to talk about banks in terms of existing institutions, as opposed to banks in terms of what function an institution plays. The role or function of banking is pretty consistent and will stay very constant over time. And so the question is, who's going to be performing that role? If a new institution performs that role, what do you call them? Do you call them a bank, and, therefore, when we talk about the banking industry, are we talking about the existing set of (institutions) that form the banking role, or anybody that performs a banking role and is by definition, therefore, a bank? What happens as time passes is that we see an institutional blurring of who is providing banking functionality. In effect, though, I think they are banks.
MS: So, in the next three to five years, not much will change for banks in the consumer payments arena?
Jensen: Right, but that comment makes the strong assumption-almost assertion-that banks will do what they have to do to make sure that they maintain the consumer payments (business). Consumer payments are so fundamental to the banking relationship; they are basically the first relationship that a person has with a bank. The other relationships are generated from that. The banking industry certainly has the capability, skills and technology to do what is necessary to maintain it.