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Stakeholder self-interest There has been much talk about
Even after three years of Visa's jawboning, less than 1 Europay/MasterCard/Visa (EMV)
percent of the total Visa cardholder base (660 million cards)
is EMV capable. The original deadlines set by Visa are not chip cards, but the major issuers
going to be met by everybody. Some observers, such as will take a cautious approach to
Celent LLC, believe merchants will need more incentives,
such as interchange relief for EMV transactions, or re-issuing hundreds of millions
mandating the use of PINs and eliminating signatures, of mag-stripe cards. Merchants
and perhaps using tokenization, to address e-commerce
fraud. who take them are going to need
Recently, a contributor to Retail Systems Reseller, Richard meaningful incentives.
Mader, made this point, "The loser in the interchange
wars is clearly the consumer. This is because while card
brands, retailers, and other stakeholders have refused to just that. These margins may be sustainable in the short
work together for the last 10 years, payment security has term (the next five years) but not in the long term (10 years
not been optimized, and convenient mobile wallets are not and beyond).
widely available." Continued challenges
Mader wrote that in 2009, while serving on the National As for PayPal Inc., what if PayPal could emulate the large
Retail Federation CIO Council, he helped organize issuing and acquiring banks, and do it without Visa, to
the Mobile Retail Initiative and recruited stakeholders boot? Well, it can, when shoppers have cash in their PayPal
(retailers, banks, card brands, payment hardware and accounts or link it to their banks. Then, PayPal doesn't have
software providers, and mobile network operators) to to clear transactions on consumers' Visa cards and pay a
work together. He concluded, "We were never able to get 3 percent fee. But for PayPal to attract money, it needs to
involvement from banks and card brands because they offer the same reward structure as a bank does. You could
would not cross the battle lines … the leadership of most have your direct deposit sent there, link all your credit
stakeholders clung to their individual interests." cards, access cash, and write checks, and pay interest on
money market accounts.
The solution he advocates includes settling the lawsuits
and having an independent association organize Then, particularly if you were a regular eBay Inc. user, you
discussions among the stakeholders, leading to a timeline wouldn't really need another bank because PayPal would
and action plan for the next generation of retail payments. become your new bank. Moreover, PayPal would protect
your banking and card information when purchasing
Banks' power online. Not having to pay a 3 percent fee to Visa is a
One thing that hasn't changed is that the banks are still huge competitive win for PayPal. This is the kind of
firmly in control. There are perhaps a dozen major issuers transformation that is going to erode the Visa franchise
and a dozen major acquirers. The banks that issue cards over time.
in large scale want to sign the merchants that already
bank with them, to use that bank as an acquirer (clearing Some things we take for granted, such as Visa's impregnable
the trades in-house without taking them to the floor of and highly profitable business model, and the role of
the exchange, so to speak). These banks will increasingly ISOs in signing merchants for acquirers, and handling
own this industry. What will be the role of the ISO going the training, installation, and customer service too – but
forward. how much longer can we take that for granted? The Green
Sheet, and the Electronic Transactions Association, were
Now, Visa's business model is highly profitable, and it founded to help ISOs do their jobs more effectively. As
generates a lot of cash. It has exhibited strong growth in industry changes inevitably occur, we must continually
service, data processing and international transaction look for new ways for the ISO to add value to merchants.
revenues. It does not take credit risk and it is not a bank.
For fiscal year 2013, Visa reported an operating income of
$7.239 billion on total revenue of $11.778 billion. This is a
very high operating margin. The net margin is also high: Brandes Elitch, Director of Partner Acquisition for CrossCheck Inc., has
42 percent. been a cash management practitioner for several Fortune 500 com-
panies, sold cash management services for major banks and served
Visa has a free cash flow yield of almost 5 percent. These as a consultant to bankcard acquirers. A Certified Cash Manager
are extraordinary numbers. History teaches us that when and Accredited ACH Professional, Brandes has a Master's in Business
a company has margins like these, competitors are driven Administration from New York University and a Juris Doctor from Santa
to find ways to take it away. The higher the margins the Clara University. He can be reached at brandese@cross-check.com.
more energy, funding, and power are brought to bear to do
33
Stakeholder self-interest There has been much talk about
Even after three years of Visa's jawboning, less than 1 Europay/MasterCard/Visa (EMV)
percent of the total Visa cardholder base (660 million cards)
is EMV capable. The original deadlines set by Visa are not chip cards, but the major issuers
going to be met by everybody. Some observers, such as will take a cautious approach to
Celent LLC, believe merchants will need more incentives,
such as interchange relief for EMV transactions, or re-issuing hundreds of millions
mandating the use of PINs and eliminating signatures, of mag-stripe cards. Merchants
and perhaps using tokenization, to address e-commerce
fraud. who take them are going to need
Recently, a contributor to Retail Systems Reseller, Richard meaningful incentives.
Mader, made this point, "The loser in the interchange
wars is clearly the consumer. This is because while card
brands, retailers, and other stakeholders have refused to just that. These margins may be sustainable in the short
work together for the last 10 years, payment security has term (the next five years) but not in the long term (10 years
not been optimized, and convenient mobile wallets are not and beyond).
widely available." Continued challenges
Mader wrote that in 2009, while serving on the National As for PayPal Inc., what if PayPal could emulate the large
Retail Federation CIO Council, he helped organize issuing and acquiring banks, and do it without Visa, to
the Mobile Retail Initiative and recruited stakeholders boot? Well, it can, when shoppers have cash in their PayPal
(retailers, banks, card brands, payment hardware and accounts or link it to their banks. Then, PayPal doesn't have
software providers, and mobile network operators) to to clear transactions on consumers' Visa cards and pay a
work together. He concluded, "We were never able to get 3 percent fee. But for PayPal to attract money, it needs to
involvement from banks and card brands because they offer the same reward structure as a bank does. You could
would not cross the battle lines … the leadership of most have your direct deposit sent there, link all your credit
stakeholders clung to their individual interests." cards, access cash, and write checks, and pay interest on
money market accounts.
The solution he advocates includes settling the lawsuits
and having an independent association organize Then, particularly if you were a regular eBay Inc. user, you
discussions among the stakeholders, leading to a timeline wouldn't really need another bank because PayPal would
and action plan for the next generation of retail payments. become your new bank. Moreover, PayPal would protect
your banking and card information when purchasing
Banks' power online. Not having to pay a 3 percent fee to Visa is a
One thing that hasn't changed is that the banks are still huge competitive win for PayPal. This is the kind of
firmly in control. There are perhaps a dozen major issuers transformation that is going to erode the Visa franchise
and a dozen major acquirers. The banks that issue cards over time.
in large scale want to sign the merchants that already
bank with them, to use that bank as an acquirer (clearing Some things we take for granted, such as Visa's impregnable
the trades in-house without taking them to the floor of and highly profitable business model, and the role of
the exchange, so to speak). These banks will increasingly ISOs in signing merchants for acquirers, and handling
own this industry. What will be the role of the ISO going the training, installation, and customer service too – but
forward. how much longer can we take that for granted? The Green
Sheet, and the Electronic Transactions Association, were
Now, Visa's business model is highly profitable, and it founded to help ISOs do their jobs more effectively. As
generates a lot of cash. It has exhibited strong growth in industry changes inevitably occur, we must continually
service, data processing and international transaction look for new ways for the ISO to add value to merchants.
revenues. It does not take credit risk and it is not a bank.
For fiscal year 2013, Visa reported an operating income of
$7.239 billion on total revenue of $11.778 billion. This is a
very high operating margin. The net margin is also high: Brandes Elitch, Director of Partner Acquisition for CrossCheck Inc., has
42 percent. been a cash management practitioner for several Fortune 500 com-
panies, sold cash management services for major banks and served
Visa has a free cash flow yield of almost 5 percent. These as a consultant to bankcard acquirers. A Certified Cash Manager
are extraordinary numbers. History teaches us that when and Accredited ACH Professional, Brandes has a Master's in Business
a company has margins like these, competitors are driven Administration from New York University and a Juris Doctor from Santa
to find ways to take it away. The higher the margins the Clara University. He can be reached at brandese@cross-check.com.
more energy, funding, and power are brought to bear to do
33
