Visa Meeting Threat from Alternative Payments
Click on individual bank names in the table below to access American Banker's coverage of each company's earnings report. Links to relevant coverage, filings, releases, and bank benchmark profile data can be found in the Related Links area of each article.October 28
Visa Inc. said it is prepared to confront alternative and mobile payments head on.
Notably, Visa has talked up its July purchase of CyberSource Corp. as giving it the tools to respond to the constantly evolving e-commerce and mobile payment space. It has also worked with DeviceFidelity Inc. to put Visa payment capabilities in mobile phones through a microSD data card that consumers can install themselves.
Visa discussed its plans during a conference call Wednesday to address its earnings for its fourth quarter, which ended Sept. 30. Its call came as PayPal Inc. unveiled multiple new initiatives this week to expand its own influence in mobile payments.
"As it relates to whether we consider PayPal to be a competitor the answer is, of course we do," said Joseph Saunders, Visa's chief executive and chairman, during the conference call. "We are going to compete not just with PayPal, but other emerging payment schemes."
Last week, the San Francisco card company said it was throwing significant resources behind Authorize.Net, beefing up an already existing platform for third-party developers that Visa bought when it acquired CyberSource.
"Certainly that gives them a lot more clout in the online space," said Nick Holland, a senior analyst at Yankee Group. "They have to be seen innovating."
Saunders argued that Visa's mobile strategy goes a step beyond what PayPal, a unit of eBay Inc., has done.
"We aren't starting out with: 'Why don't you slap a sticker on a cellphone and swipe it?' " he said — possibly an indirect reference to PayPal's deepening partnership with Bling Nation Ltd., which offers a contactless payment sticker that it encourages people to put on their phones. PayPal balances can be used to fund Bling Nation purchases made at the point of sale with certain merchants.
Saunders said Visa's technology is stronger. "We have an integrated mobile network that we have been working on for a number of years," he said.
Though PayPal and Bling Nation are making an aggressive push, analysts are convinced Visa will still come out ahead.
"Alternative payment methods will mostly be done using … Visa cards," said David Koning, senior analyst for the investment consultancy Robert W. Baird & Co. "All these new technologies, the easiest things for the consumer to do is use what they already have, just in a new way."
But the fight is for more than technology.
"It's mobile. It's prepaid. It's emerging markets. It's e-commerce. There are multiple growth thrusts that are going on here, and I think you are seeing that," said Jason Kupferberg, a UBS Investment Research analyst. "But MasterCard is going to be going after these same types of initiatives. At a minimum, you are competing with them, and in some of these areas you are going to be competing with a broader list of competitors."
For instance, Visa is set to spend roughly half a billion dollars on advertising in 2011 in countries with emerging middle classes, such as Brazil.
Visa said it would also add more employees in those countries, though it did not provide exact figures.
"We do expect to be hiring next year and a disproportionate amount of that hiring is to be outside the United States, as we focus aggressively on growing our revenue and developing our markets outside of the U.S.," said Byron Pollitt, Visa's chief financial officer, during the earnings call. "We're committed to getting those boots in the countries where the opportunity is significant."
Overall, analysts said Visa's fourth quarter was solid. Visa said its card payments volume rose 14% year over year, to $828 billion. Its total number of processed transactions climbed 16%, to 12.1 billion. Revenue rose 13%, to $2.1 billion.
Net income rose 51%, to $774 million, for the quarter and was up 26% for the year, to $3 billion.
Wall Street wasn't impressed, however. At the close of the market Thursday, Visa's stock was down 4.34%, at $76.45 a share.