For Visa, fintechs are no longer frenemies

Visa is becoming more reliant on the businesses that it could have easily considered rivals just a few years ago.

The perception of fintechs as threatening to traditional card networks is changing as these companies expand. Visa now sees the startup market as a source of innovation.

"A lot of these players started out in different businesses — they were, in essence, closed-loop networks," Visa CEO Alfred Kelly said during a Thursday earnings call. "But as they get larger, they realize we can bring a lot of benefits to them in terms of our global reach."

The path goes both ways. As advancements in the mobile economy and online selling accelerate, Visa will be increasingly reliant on fintechs to tap new markets. Visa has opened its development tools to lure payment innovators, offering APIs to support the fintech community.

During the earnings discussion, Kelly called out fintech partnerships in all of its regions, covering P2P, installments and B2B transactions. This is a sharp contrast to Visa's past attitude; former CEO Charles Scharf, who now heads Wells Fargo, saw PayPal and its ilk as clear rivals with little room for compromise. He famously blasted the idea that he would consider working with "frenemies" like PayPal.

Times have certainly changed. The card brand has recently collaborated with Revolut, Chime and N26, giving Visa access to alternative financial institutions that are adding products and geographic markets. Revolut just launched in Singapore and plans to launch in the U.S. and Canada in the next year. N26, of Germany, is also plotting an expansion into the U.S.; while U.S. online bank Chime has drawn VC funds, recently passing $1.5 billion in market valuation, and will enable Visa to extend early paycheck access, Kelly said.

"Many of these players are attracting new segments of the market and are accelerating the growth of digital payments," Kelly said. "In many cases we are opening up capabilities to traditional clients to get their credentials places they would not be able to get them."

A collaboration with the bank-supported R3 blockchain consortium aims to ease connections to faster payment systems.

"We want to build relationships with the entire ecosystem globally," Kelly said, adding Visa has also made partnerships with fintechs in India and South Korea to extend remittances and merchant services.

Much of Visa's current strategy aims to support the expansion of omnichannel shopping systems for merchants, and international e-commerce trends that are resulting in payments becoming more digital, more frequent and often smaller in size.

Digital modes are expanding, with eight of the top 10 U.S. issuers active in contactless payments, with 100 million contactless cards issued, Kelly said, adding the card brand is on pace to offer 300 million contactless cards by the end of the calendar year 2020.

Visa this week announced the results of its collaboration with Mastercard, American Express and Discover to launch its "buy button," or a similar consumer experience for e-commerce transactions, creating a ubiquity that's similar to plastic card payments.

The button, called "click to pay," is a long-awaited initiative among the card brands that's also a nod to the migration toward digital payments. Visa has made other recent moves to tweak its digital game, such as creating a fintech portal, which has links for startups that are building digital wallets and other automated financial services.

"There will be broad merchant adoption after the holiday season," Kelly said, adding changes to merchant payment systems don't usually happen around the holiday shopping season, saying existing usage of Visa Checkout will provide a user base for click to pay.

For the fourth quarter, which ended Sept. 30, Visa reported net income of $3 billion, or $1.34 per share, which was down from $3.3 billion, or $1.47 per share, the prior year. Adjusted earnings were $1.47, up from $1.21 and above analysts' expectations of $1.43, according to MarketWatch. For fiscal 2020, Visa, projects low-double-digit revenue growth. Visa processed more than 47 billion transactions in the quarter, which was up from about 41.6 billion the prior year. The earnings performance caused Visa's stock to rise by 1% in after-hours trading Thursday.

Visa's earnings come against the backdrop of Facebook's Libra cryptocurrency project, which is subject to near constant regulatory pushback and pressure over claims the project is circumventing central bank control over monetary policy.

Though Visa's not part of the project, the card network was an initial participant and one of the high-profile dropouts ahead of Libra's recent meeting in Geneva.

In Visa's previous earnings call, Kelly mentioned the original partner agreements were nonbinding, hinting at the time the regulatory issue could cause Visa to bail. Stripe, Mastercard, eBay and PayPal also left the initiative, leaving Libra without several of its payment-oriented partners.