Visa's Ex-President Surveys the Hits, and Flops, of Payments Startups

Visa's (NYSE: V) former president is now firmly ensconced in the private-equity world, but he's hardly turned his back on the payments industry.

John C. "Hans" Morris left Visa in 2009 and now runs the financial institutions group for private-equity firm General Atlantic. On Monday night, he shared some of his experiences investing in payments companies with a room full of bankers, competitors and former colleagues.

"Business model is the key thing when it comes to payments companies," Morris said during a panel discussion in New York, at one of JPMorgan Chase's (JPM) downtown buildings.

Start-ups and smaller companies trying to compete with giants like Visa, MasterCard (MA) and American Express (AXP) are facing an uphill climb, Morris said, because those companies already control the authorization of transactions and acceptance of payments.

"There are literally hundreds and hundreds and hundreds of ideas that have come up, and most, nearly all, fail, because they go after core authorization and acceptance," he said. "Right now, post-Durbin, you've got to do that for 22 cents, and otherwise the merchants don't want to make much room" for a new technology or payments company.

JPMorgan analyst Tien-tsin Huang, who also spoke on the panel, agreed that retailers are becoming more important than ever in determining the success of payments startups. In the industry's deal-making process, "everything seems to be moving closer to the merchant … and to the consumer," he said.

The startups that have succeeded in payments so far have been special cases, according to Morris, who cited PayPal (EBAY) and Discover Financial Services (DFS) as two of those outliers.

Or there's the "very successful" China UnionPay, the government-run network that processes all card transactions in China. "So you could start a monopoly with a billion or two [billion] people, you could do that," Morris joked.

He acknowledged that his own firm has sometimes stumbled when investing in the payments industry, especially in emerging markets. General Atlantic has a stake in the South African alternative payments company Net1, and "it is not the greatest investment in the world," Morris said, later adding, "It's a great little company, and if anyone wants to buy it, let me know."

Morris, a former Citigroup (NYSE: C) investment banker who helped shepherd Visa through its initial public offering, started his remarks with a wry reference to former Yahoo (YHOO) Chief Executive Scott Thompson, who left the company this month after his resume was found to misstate his academic credentials.

"Resume precision is increasingly important in the last couple weeks," Morris drawled, before slightly correcting panel moderator Té Revesz for how she had introduced him.

The panel discussion about "an investor's view of payments" was hosted by NYPAY, a New York payments industry networking group. Morris and Huang were joined by Payfone Chief Executive Rodger Desai, David Freschman, a managing principal at venture-capital firm Innovation Capital Advisors, and Robert Peck, President at merchant banking firm CoRise.