In launching its own digital wallet, Visa Inc. says its size will help it succeed in a market where many established payment companies have learned the hard way that bigger is not always better.
Visa says its position as one of the world’s top card networks will set it apart with its new alternative payment product, which allows consumers to make online or mobile purchases using a username and password instead of typing in a card number. The card number does not have to belong to a Visa card.
Visa announced the product on May 11 (
This launch resembles American Express Co.’s recently launched Serve as well as a multitude of efforts that failed a decade ago despite strong backers like Citigroup Inc. and Wells Fargo & Co. The banks’ alternative payment offerings were unable to keep up with then-upstart PayPal Inc., which today has more active accounts than any U.S. bank has retail customers.
Visa insists that it is fundamentally different from any bank that has tried this approach before.
“What’s different is that it’s Visa,” says Jim McCarthy, Visa head of global products. “We are not an individual bank,” and even giants like Citi and Wells “didn’t have the ubiquity and the scale that we do.”
PayPal, now a unit of eBay Inc., thwarted Citi’s c2it and the Wells/eBay collaboration Billpoint by breaking free of the trappings of traditional payments. Experts say Visa’s digital wallet, however, is still very much tied to the mainstream payments world, particularly because Visa intends to use banks as an enrollment channel.
“They are saying: ‘Look, we are Visa and our primary customers are still the banks,’” says Thomas C. McCrohan, managing director for equity research at Janney Montgomery Scott in Philadelphia. “Apple and Google aren’t going to talk to the banks, now Visa is helping the banks maintain their turf and bring more people to the table. … All the teams are putting their jerseys on, so you know who’s on whose team.”
Brian Riley, a research director in the bank cards practice at TowerGroup, says Visa “is in reaction mode. I think that American Express’ Serve caught a few people off guard” when it was announced in March (
Gwenn Bézard, co-founder and research director at Aite Group in Boston, says he does not see Visa as having a track record of building customer-facing products, “and the main challenge they have is just their ability to do that.”
However, Visa is fundamentally different enough from banks in consumers’ minds that it may not face some of the challenges early PayPal rivals did, Wedbush analyst Gil B. Luria says.
“Visa probably has a better chance of being successful, because Visa is more of a technology company–Wells and Citi are not,” he says.
Visa’s virtual wallet, set to be released this fall, will rely on a new type of payment that Visa plans to market through its CyberSource Corp. subsidiary (which it bought last July) and its merchant acquirers. Visa also is working with other technology providers, such as CPI Card Group, Inside Contactless and NXP Semiconductors, to test mobile contactless payments.
Visa will make DeviceFidelity Inc.’s technology, which it is testing with several banks for mobile payments, commercially available this summer, McCarthy says.
Eventually there will be a smartphone app that will run in conjunction with Visa’s digital wallet, McCarthy says. For now, the wallet can be managed from PC and smartphone Web browsers.
The digital wallet also builds on its February purchase of PlaySpan Inc., which accepts 85 different payment methods in its virtual payment system for computer games, McCarthy says.
“This is really the culmination of several discrete activities,” he says. “We are re-skinning those capabilities to be more open and more ubiquitous.”
Consumers will, at first, be able to enroll in Visa’s digital wallet through merchants and issuing banks, McCarthy says. The company already is working with several retail banks, including the U.S. Bancorp, BB&T Corp., PNC Financial Services Group Inc., Regions Financial Corp. and Barclays PLC’s Barclaycard US.
Despite having so many partnerships in place, Visa is still working out the details of how its digital wallet will develop.
“I’m reluctant to talk about what we are going to do and in what order,” Joseph Saunders, Visa’s chief executive, said during a conference call to discuss the product announcement.
Visa will leverage its Authorize.Net unit to allow online merchants to accept Visa’s digital wallet, Saunders says.
The wallet “is going to manifest itself in other sources of fee income, and that gets into the question of whether we are the merchant of record,” he said. “It also gets into the question of what services can be delivered to merchants and to consumers at the point of sale.”
In an e-mailed statement, PayPal spokesperson Sara Gorman said “it’s clear that the payments industry is starting to look more and more like PayPal.”
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