Main content

Visa CEO on a digital payments future - enemies, frenemies, Uber and Amazon

Stuart Lauchlan Profile picture for user slauchlan June 5, 2017
In the first of a two part look at the digital payments market, Visa CEO Alfred Kelly paints a picture of a future built around increased security, higher e-commerce conversion and a wider partner ecosystem.

Alfred F Kelly

I want Visa to continue to be known as a digital thought leader and solutions provider.

It’s a clear statement from Visa CEO Alfred Kelly, some six months on from his appointment to the top job. It was a move that came after 23 years in the payment industry, including time with American Express Company AXP and MetLife Inc.

Already a board member at Visa, he came to the CEO role with the advantage of a deep understanding of the changing nature of the payments sector, not least the rising threat from digital pureplays. But he looks to Visa’s past as being a competitive differentiator here:

We're in a unique space in payments where we don't necessarily everybody have to go out and battle for a fixed share of a pie. The opportunity in payments to just grow the pie is enormous and I think as the CEO, one of my big job is to be working hard with the company and our clients to figure out how to take advantage of growing that pie in payments and with the explosion of digital we have a real opportunity to really take it to a new level.

The digital space is opening up enormous opportunity for the entire payments ecosystem and I think that one of our roles is to be looking two or three years ahead and being a thought leader for and with our clients as we all continue to think about how to take advantage of that growth.

There are a number of key challenges that need to be met to achieve this, with Kelly identifying three in particular - helping people protect data, helping increase the conversion rate from shop to buy and helping to ensure strong authorization.

The first of those comes back to the long-term issue of security on the internet. While it’s always useful to recall that ATM ‘hole in the wall’ machines were regarded with suspicion when first introduced, the reality is that there is still a lingering concern about online data, particularly of course when it’s to do with money. Kelly sympathises:

If today I lose my phone, I'm flipping out because it's become such an appendage to me but if all my payment credentials are on it and they are not safeguarded now, I am ready to jump off a bridge. So I think hence our push on tokenization. We want to devalue data in the open environment so that if it gets compromised, it is not usable. There is still lot of work to do here. There are millions and millions, hundreds of million,s of cards on file records that sit out there that are not sufficiently protected and those, over time, need to be tokenized in some shape or form as well.

As for the second objective of increasing e-commerce conversion, this is a particular digital challenge, says Kelly:

Generally when you get to the checkout counter in a face-to-face world, you actually buy what you shop for. In the e-commerce world, there is a huge drop-off from shopping to actually paying and buying. We are working hard with our clients to try to increase the rate and the flow-through from shop to buy. Visa Checkout is an example of that. We have 21 million enrolled..we have it in 23 countries, we have 1,500 financial institution partners that are offering it, we now have 300,000 merchants around this world signed-up. I think it's close to $200 billion of addressable volume in those 300,000 merchants.

Third on Kelly’s to-do list is the subject of authorization:

One of the real frustrations I think for everybody, the consumer, as well as the issuers, as well as the networks is that the authorization rate in the card in our present world are much, much higher than they are in the face-to-face world. We want to focus hard with our issuing partners and our merchant partners to try to drive up the level of authorizations because this is volume that is there for the taking. People have actually now gone to the point of wanting to buy and because of insufficient data, they are in a location that's not recognizable etc, they are not being authorized and they are being declined.

That problem is one of the reasons that Visa bought CardinalCommerce in January of this year, he adds:

They bring a tremendous amount of increased data to the party and some very, very good algorithms that will help drive authorization rates up in the cards in the present world.

Opening up

CardinalCommerce had in fact been a long-standing Visa partner prior to the acquisition. Partners are a big thing for Kelly’s vision of a digital roadmap for Visa:

I want Visa to be more of an open company; I think we're moving in that direction, but the payments world and the payments ecosystem is quite unique. There is a tremendous amount of interdependencies and companies that are friends or also foes. There is a lot of frenemies in the payments space and again, as we get into a digital world, there will be new player that will be coming in. Our front door is open. We want to talk to anybody and everybody who thinks that they can add value to the payments ecosystem and we want to make sure that, where we think it makes sense, we embrace people as partners. I think that having a more open mindset about who can help and where they can help and where they can add value, can only be good for the entire ecosystem.

An obvious question around partnerships has to be around the relationship with the likes of Amazon - opportunity or threat? Kelly has some clear views:

First and foremost, what Amazon has done is nothing short of extraordinary. I mean, they have set a standard in terms of e-commerce that is just phenomenal. They have to be a very good partner of ours, and a very important partner of ours…One of the things about Amazon is they are very customer-centric and they believe in consumer choice and they are not trying to steer people in certain directions. So we have a very good relationship with them, we continue to work to do everything we possibly can to be a very good partner of theirs. Our sense is that's the best road to go down and we're best served by just making sure that we stay close to them and we're serving them well.

That said, there are competitive challenges that need to be addressed and countered, not least MasterCard’s £700 mililion acquisition of payments technology company VocaLink. This adds bank account payments to Visa’s existing card network. Vocalink was previously owned by a group of 18 UK banks and building societies, including Lloyds Banking Group, Barclays, HSBC, Royal Bank of Scotland and Santander.

There were some serious anti-competitive concerns by regulators over the takeover, but it was ultimately signed-off, leaving Visa to come up with its own response. That response, says Kelly, is in the form of Visa Direct, which offers fast payments push capabilities that open up new opportunities in the Uber-economy:

It exists today and it's working today and there are many people using it today. We already have use cases in the shared economy, where renters are pushing payments to owners, car services are pushing payments to drivers in the case of Lyft and Uber. We have use cases of insurers making dispersements of claims to claimants. In the gig economy, from individuals to larger companies, we have people making push payments to contractors and freelancers.

We're absolutely committed to and have the capability to facilitate push payments and fast payments and don't believe we need to acquire something to do it. We have the capability right on our network today.

Now the work is to get out there, sector by sector because some of the value added services are different by sector. We have to get out there and start creating value that's beyond just making 'fast payment’. We stood up a dedicated team focused on the commercial and B2B space but I think the good news is that we have a technology solution in place to accommodate it.

A grey colored placeholder image