As the relationship between consumers and retail brands continues to change, where multi-channel services and digital interactions are increasingly important to success, so is the consumer’s relationship with payment.
When once you relied on cash and cheque, you now may use contactless cards, online wallets and mobile phone payments. A mixture of capabilities is not uncommon amongst consumers and payment platforms are increasingly having to forge new and conflicting relationships with each other. For example whilst I use Apple Pay for a lot of what I purchase, this is still reliant on my traditional bank and the support of Visa.
Visa CEO Charlie Scharf touched on these points when speaking at the Bernstein 32nd Annual Strategic Decisions conference this week, where he spoke about the changing nature of payments, thanks to the demand for digital interactions. He said:
When you think about what it takes to conduct commerce today, and the separate experience of looking, choosing something, checking out and actually completing a payment, those are all very distinct things that happen through the buying process. And those happen whether you’re in a physical environment or whether you’re online today. And there is no doubt that over time, those things will all converge into something which is far more frictionless than it’s ever been.
And it will expand to other methods of payment, right? We talk about the Internet of Things, we think about wearables and what that means. And so, the opportunity to buy…with much less friction is certainly what the future looks like. And in that kind of environment, cash doesn’t work.
One interesting point that Scharf spoke about was Visa’s relationship with PayPal, which has historically been pretty friendly. However, it seems that this might be changing somewhat and Visa is now reconsidering how it views the online wallet’s role in the market.
Scharf spoke to the way that PayPal essentially acts as an intermediary for the consumer online, on certain websites, suggesting that this was not good for the customer experience. However, he also hinted that Visa had played nice in the past because PayPal was the leading provider in a scarce market, which is arguably no longer the case.
For example, Visa has launched its own integrated online payment platform, Visa Checkout. Scharf implied that because the market has become more competitive, Visa may reconsider how friendly it is with PayPal. He said:
[People] talk about frenemies. There is no such thing in my mind, either one way or the other. And I’ve got a lot of respect for the people at PayPal; I’ve got tremendous respect for what they’ve built and the capabilities they have. But, what they do as a business is not good for us and is not good for our clients.
[Half] the transactions that go to their wallets are on general purpose cards and we’re half of those transactions. That then becomes the ground for them to be able to market their products where we get this intermediated and our clients get this intermediated. And for the consumers, I can go through all the reasons that becomes a bad experience. And so that trumps everything. And that’s not something that we would like; it’s not something we support.
And we’ve sat idly by for a long time for a bunch of reasons which we can go into. But, the world is different today. There is more competition; there is Visa Checkout, there is MasterPass, there is Apple Pay, Samsung Pay, Android Pay, Chase is doing its thing, Wells Fargo, I mean you go all around the world, there are lots of other choices to pay, simply in the digital world, where there is real competition.
And so, we’d like to have a different relationship, and either we’ll have the different relationships or will be fierce competitors which we haven’t been. We put our own bounds of timing around what that is and we’re either going to go through door A or door B.
Scharf was asked at the event if he would share the timeline for picking which door to go through - to which he responded “no”.
Scharf was also asked about Visa Checkout and why it provides a better experience for merchants and for the consumer. His response was that if merchants can use a standardised ‘button’ that allows consumers to shop in a frictionless way, without having to each build their own tools, and take up real estate on their checkout pages, then they are immediately going to be drawn to that solution. He said:
Because, the last thing that they want to do is do anything which is going to impact that shopping experience in anytime negative way. When we think about who can earn the right to be there, given the size and the scale of who we are, we’re certainly, one of the few likely candidates to be there.
Scharf acknowledged that Visa Checkout isn’t a quick win, where much like Apple Pay, Visa has had to spend the time wooing merchants to integrate its tool into their commerce platforms. He said that Visa is trying to build merchant acceptance and consumer acceptance “in locked step, having one not get ahead of the other”. He added:
Most important benefit that we can bring when we sort through it is the research to them, which we now have, that shows if you use Visa Checkout, your likelihood to finish the transaction when you put something in the shopping part is something like 82% or 83% close rate as opposed to something in the 40s through the traditional method. And that’s huge.
And so, that all of a sudden changes the nature of the dialogue that you have, because you’re talking about helping them actually sell more as opposed to cost of acceptance or something like that.
Mobile wallets and Blockchain
With so much increased competition in the marketplace, both across online and on mobile, what is the future role for Visa? Is it going to have to fight its corner? Scharf spoke about the benefit of being an open network, rather than a proprietary provider, which enables Visa to pick and choose who it wants to partner with. On the increasing number of providers in the market, Scharf said:
I think certainly you are going to see more before you see less. I think you’ve got a combination of things going on, you’ve got some people [that are being] very proactive, that think that they can be a winner. And then you’ve got other people that say, listen, we’re not quite sure but we have to give it a shot. And so, you get a lot of things that are being thrown up against the wall with not a lot of clarity as to what the end state looks like for these things.
From our standpoint, we’re in a position where we’re not trying to pick winners; we’re not trying to pick winners in consumer experiences, we’re not trying to pick winners in the handset manufacturers in terms of who we should partner with. We want to partner with all and we want to enable all that will operate under the security standards that we’re comfortable with, that are people that we’re comfortable being strategic partners with, that want to do business in the four party model and that can provide some degree of scale.
If you meet those four criteria, those are people that we want to work with and enable in some way, and then let the market choose what will actually win in the marketplace. And so, that’s the benefit that we have. We don’t have to design the screen and have that screen compete with another screen whether it’s successful. We want to be the enabler that sits behind and powers all of these things and let the world decide what the winners are.
Finally, Scharf had some choice words about the future of Bitcoin and Blockchain - the digital currency and the technology that are seen to be driving some disruption in the online payments world. We’ve written a fair bit about this already, but it’s interesting to hear the CEO of one of the leading payment providers highlight that it is very much on his radar.
And like others, Scharf is quick to recognise that Blockchain is the interesting component of the Bitcoinand that this is likely going to have implications for the enterprise, rather than the consumer market. He said:
When you think about something that has the capabilities of blockchain, you look at it and say where can it be applied? Payments is just one of those places. There are lots of other places. And there are lots of other places where it can be applied where it solves a lot of problems that that exist. It solves a lot of problems that exist in other places that don’t exist when the big global networks are used.
And so, the question is, are they going to step in and replace what we do, why? The fact is it’s really not that much cheaper when you actually go through it; it’s not quicker. The question of would governments allow it. There are a lot of things that stand in the way of it in the short term being a meaningful disruptor to what we do.
Now, having said that, there are places in the payments universe, which are highly inefficient, which are complicated, which are expensive, and it can provide great benefit. And so to me we think about it in terms of on the commercial space where the commercial space is far more complex and it’s just difficult to do business in where there are meaningful applications for the technology and that’s where we are doing a series of prototype builds ourselves, and also in the long tail of payments where you could be fine moving things away from governments and what not, but not in a short term in the core space.