In a Shaky Economy, Card Networks See Digital as a Safe Bet

The digitizing of payment transactions has become important enough at Visa and MasterCard to remain a top investment priority, even as the networks brace for the economic fallout of collapsing oil prices and volatile stock markets.  

"We've not cut back on anything that related to building our digital business, the APIs and SDKs that are part of the developer center, the things we are doing on behalf of merchants, the things that we're doing on behalf of the issuer to build our consulting services," said Charlie Scharf, Visa's CEO, during Thursday afternoon's earnings call.

Both Visa and MasterCard reported strong earnings for the end of 2015. Visa's net income for the quarter ending Dec. 31 climbed to $1.92 billion, from $1.57 billion the prior year. And for the same period MasterCard reported net income increased to $890 million, from $801 million a year earlier.  

However, both companies said economic headwinds make the future difficult to predict. MasterCard projected earnings at the low end of its outlook range, and Visa expressed disappointment that the ongoing economic challenges were not abating as quickly as it hoped.

"Current trends create some uncertainty around our revenue outlook for the year," Scharf said. "As the year progresses, we will continue to look at opportunities to moderate expense growth."

Scharf hinted cost cuts were in the offing, while stressing the focus on mobile-driven innovation would remain a strong focus.

"What this environment does is gives us the ability to take a harder look at where we are not as efficient as we should be and attack those dollars," Scharf said.

Investments in mobile commerce technology have already paid off for Visa. It reported 10 million registered users for Visa Checkout, its digital wallet, representing $100 billion in addressable volume. Visa Checkout customers complete 30% more transactions per person than the overall population of online choppers, Scharf said.

"We also made an investment in Stripe and work very closely with them" Scharf said. "We think they are just extremely talented people who are almost solely focused on the mobile space, and enabling mobile commerce in a way that is very friendly to us."

While calling 2016 a "crazier" year than the network expected, MasterCard CEO Ajay Banga also stressed the importance of mobile and other automated payments investment during the card network's Friday morning earnings call.

"The U.S. economy seems the most resilient and Europe is expected to increase at the fastest pace since 2011," Banga said. "However several big emerging markets, including China and Brazil, are experiencing weak or slowing growth, and of course oil prices have an impact on oil sensitive markets around the world."

Banga discussed security for digital payments, with investments in tokenization, which secures account data by replacing it with a separate value called a token. Tokenization is a major play for both Visa and MasterCard to protect electronic transactions, and is considered a gateway for the networks to sell other related services.

The focus on digital payments stems in part from the shift to EMV-chip cards, which improve security for card-present payments but does nothing to address e-commerce fraud.

"With EMV, fraud will migrate online; we're just putting bandaids on EMV but making the payment system secure," Banga said.  

Like Visa Checkout, MasterCard's MasterPass is also expanding quickly. It's now available in 29 markets and MasterCard has launched 64 MasterPass enabled wallets globally, Banga said.

MasterCard's goal is to enable any consumer gadget or accessory to be a payment device. MasterCard recently began a partnership with General Motors to integrate the network's digital enable system into OnStar. MasterCard is also partnering with Samsung to add in-app payments to the tech giant's Web-connected refrigerator.

"While none of these is expected to be big on their own, it demonstrates the breadth of the opportunity in digital payments," Banga said. "We are engaging in that opportunity."