Visa's Plan for PayPal Has Been Years in the Making

PayPal's gotten off to a rousing start as an independent company, but Visa CEO Charlie Scharf doesn't appear to be worried.

"We actually don't spend a lot of time thinking about what PayPal is doing or what we're doing any more or less than we look at all of the interesting things that people are doing in the world of digital commerce," said Scharf during the card company's quarterly earnings call July 23 in response to a question from Lisa Ellis, an analyst from Bernstein.

PayPal's split from eBay this week was designed to make PayPal more nimble, with a focus on working with technology developers and building a multi-channel presence. But Visa has been working hard over the years to make sure that PayPal — and any other rival — will have a fight on its hands.

"Forget about all of our competitors or people who want to compete with us," Scharf said. "We're doing everything that we can to ensure that we're going to be as successful in the world of digital commerce as we have been face to face."

Indeed, Visa has long been treading on PayPal's home turf and closing the gap in consumer perception, according to Jim Van Dyke, CEO of Javelin Strategy & Research.

Javelin measures consumer trust, innovation and privacy among the largest banks, card brands, and the "gang of five," or PayPal, Amazon, Apple, Google and Facebook. In its most recent study, PayPal and Visa earned the No. 1 and No. 2 ranks, respectively, with Visa gradually gaining against PayPal over the past three years.

To that end, PayPal has been piecing together mobile wallet technology from Paydiant, remittance technology from Xoom and software development tools from Braintree. These deals built on the company's already hefty list of acquisitions.

"The next important battleground is mobile-in-person payments, and in that realm our research model clearly shows one thing—bank brands are under siege to the upstarts," Van Dyke said, adding that while PayPal is at the top of Javelin's trust list, it's also the only non-bank brand not currently gaining ground.

In this environment, tokenization is "hot" and about to get "hotter" as a competitive battleground, Van Dyke said.

"Visa is making great strides here, and yet it's interesting that PayPal has essentially had its own form of tokenization all along," Van Dyke said. "Few people think of tokenization in this way, yet if what's important is that the merchant doesn't get to see the consumer's personal account number, it fits."

During Visa's earnings call, Scharf touted the card network's mobile growth and technology initiatives, saying Visa Checkout is now supported by 270 financial institutions globally, with more than 160,000 merchants, 5 million registered users and more than $50 billion in addressable income.

Visa recently partnered with Verifone to build out new point of sale technology and services. The Verifone partnership will involve Visa's CyberSource subsidiary connecting its payment management platform to Verifone's point of sale gateway to provide a single platform for security, fraud prevention and digital and offline payments, Scharf said.

Both Visa and MasterCard are making tokenization a major component of their marketing strategies. During Visa's earnings call, Scharf said more than 2,300 financial institutions and banking partners are participating in Visa's service, which uses a "token" as a replacement for a traditional account number to protect card transactions.  Apple Pay in the U.S. are Google globally are also supporting Visa's tokenization program, and Visa will deepen international expansion of tokenization this fall, Scharf said.

This plan will allow Visa to begin tokenizing Visa Checkout transactions, he added.  

In a matter not directly related to technology, Scharf expressed his concerns about the recent crisis that has negatively affected FIFA, the international football governing association that oversees the World Cup and other tournaments. Visa is a marketing partner of FIFA, which is under investigation for participating in a kickback scheme.

"We view the stewardship of our company, our brand and our clients with the utmost importance...and we seek to partner with those that think and act like us. I don't believe that FIFA is living up to these standards," said Scharf, who called on a third-party commission to drive reform at FIFA. "No meaningful progress can be made under FIFA's existing leadership."

For the quarter ending June 30, Visa reported net income of $1.7 billion, or $2.78 per share, up about 25% from $1.36 billion the prior year. Excluding an adjustment in the value of its Visa Europe put option, profit was $0.74 per share, better than the $0.58 average estimate of 32 analysts queried by Bloomberg. During the conference call, Visa executives discussed the possibility it may acquire Visa Europe, but did not provide added details.