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Innovation versus • It's not easy to set up a network because it links
issuing and acquiring banks, merchants and
conventional wisdom • Visa is dealing with the threat of the "staged
consumers with cards.
wallet" by raising transaction charges to keep them
in check.
• Consumers have trust and comfort when using
Visa products, which are unmatched by the
competition.
• The cost and feature set of current credit cards are
"not that bad" for consumers and merchants.
• Everyone has a Visa card.
I don't believe any of this. As evidence, I submit three events
from the history of credit cards that had no precedent and
changed the landscape.
First, back to 1949, Frank McNamara went to dinner with
Alfred Bloomingdale at Major's Cabin Grill, and realized
he had forgotten his wallet. He made an arrangement with
By Brandes Elitch the restaurant to leave his signed business card, and the
CrossCheck Inc. restaurant would bill him once a month. A year later, he
had 10,000 upscale consumers signed up for the program,
nnovation is the primary topic among payment pro- as well as 28 restaurants and two hotels. He had created the
fessionals today. Given the dominance of a handful first true credit card as we know it: Diners Club. Of course,
of payment processors and issuing banks, you'd it was targeted at just the upper 5 percent of the population
I think the difficulty of replacing the current networks
would be overwhelming. But there's a widespread effort to Second, in September 1958, a Bank of America middle
innovate, although the process is complicated and unpre- manager named Joe Williams came up with the idea to
dictable. mass-mail unsolicited credit cards to 60,000 households in
Fresno, Calif., a plastic credit card called the BankAmericard.
In Sonoma County, we make a lot of wine. And winemakers None of those 60,000 households had asked for it, and they
consider the type of rootstock to be planted, where to plant, had never even seen credit cards before. This is the famous
the type of soil, climate, sun and rainfall. They also choose "Fresno Drop." By 1970, the government outlawed mass
the clone, which imparts the desired taste, color and aroma. mailing of unsolicited cards, but the bank had a proof of
Our local wine expert, Dan Berger, mentioned a study by concept at that point. Of course, this became the basis of
a UC Davis professor, the late Maynard Amerine, stating the Visa card association.
a winemaker must make at least 200 decisions from when
the plant begins to bud until the final bottling. Third, during the 1986 Super Bowl, a commercial aired for
something called the Discover Card. The idea came from
About 25 years ago, Sonoma County's Chardonnay began Ray Kennedy Sr., who was a Sears credit manager. The
to change from its previous lean, crisp style to one in which new card went head to head with Visa and MasterCharge
oak and softness, even sweetness, came to dominate. (now MasterCard Worldwide). Industry observers must
Recently, the trend has been toward less "oakiness" and have thought Kennedy was crazy. But Discover had three
more acidity – even dispensing with oak barrels. So advantages: no annual fee, cash rewards and higher credit
the Chardonnay of today is quite different than it was limits. Discover went from strength to strength and finally
previously. Change was inevitable, but it took a long time. did an IPO in June, 2007. As of October 2013, Discover
Financial Services had a market capitalization of $25 billion.
Conventional wisdom to question
Developments to watch
Now innovation is causing the ground to shift in the
payments industry; we just don't know what the timeline These three events put things in perspective. No individual
will be. Today, our industry's conventional wisdom player has a dominant market position in the long run, not
encompasses these ideas: even Visa. Here are examples of current developments
• Visa Inc. has a dominant position due to its strong worth watching.
moat. • The top 250 retailers and the National Retail
• New entrants will not disrupt Visa in the near Federation have actively opposed the proposed
$7.2 billion federal court settlement with Visa. In
term.
May 2013, large retailers filed their own lawsuits
26
Innovation versus • It's not easy to set up a network because it links
issuing and acquiring banks, merchants and
conventional wisdom • Visa is dealing with the threat of the "staged
consumers with cards.
wallet" by raising transaction charges to keep them
in check.
• Consumers have trust and comfort when using
Visa products, which are unmatched by the
competition.
• The cost and feature set of current credit cards are
"not that bad" for consumers and merchants.
• Everyone has a Visa card.
I don't believe any of this. As evidence, I submit three events
from the history of credit cards that had no precedent and
changed the landscape.
First, back to 1949, Frank McNamara went to dinner with
Alfred Bloomingdale at Major's Cabin Grill, and realized
he had forgotten his wallet. He made an arrangement with
By Brandes Elitch the restaurant to leave his signed business card, and the
CrossCheck Inc. restaurant would bill him once a month. A year later, he
had 10,000 upscale consumers signed up for the program,
nnovation is the primary topic among payment pro- as well as 28 restaurants and two hotels. He had created the
fessionals today. Given the dominance of a handful first true credit card as we know it: Diners Club. Of course,
of payment processors and issuing banks, you'd it was targeted at just the upper 5 percent of the population
I think the difficulty of replacing the current networks
would be overwhelming. But there's a widespread effort to Second, in September 1958, a Bank of America middle
innovate, although the process is complicated and unpre- manager named Joe Williams came up with the idea to
dictable. mass-mail unsolicited credit cards to 60,000 households in
Fresno, Calif., a plastic credit card called the BankAmericard.
In Sonoma County, we make a lot of wine. And winemakers None of those 60,000 households had asked for it, and they
consider the type of rootstock to be planted, where to plant, had never even seen credit cards before. This is the famous
the type of soil, climate, sun and rainfall. They also choose "Fresno Drop." By 1970, the government outlawed mass
the clone, which imparts the desired taste, color and aroma. mailing of unsolicited cards, but the bank had a proof of
Our local wine expert, Dan Berger, mentioned a study by concept at that point. Of course, this became the basis of
a UC Davis professor, the late Maynard Amerine, stating the Visa card association.
a winemaker must make at least 200 decisions from when
the plant begins to bud until the final bottling. Third, during the 1986 Super Bowl, a commercial aired for
something called the Discover Card. The idea came from
About 25 years ago, Sonoma County's Chardonnay began Ray Kennedy Sr., who was a Sears credit manager. The
to change from its previous lean, crisp style to one in which new card went head to head with Visa and MasterCharge
oak and softness, even sweetness, came to dominate. (now MasterCard Worldwide). Industry observers must
Recently, the trend has been toward less "oakiness" and have thought Kennedy was crazy. But Discover had three
more acidity – even dispensing with oak barrels. So advantages: no annual fee, cash rewards and higher credit
the Chardonnay of today is quite different than it was limits. Discover went from strength to strength and finally
previously. Change was inevitable, but it took a long time. did an IPO in June, 2007. As of October 2013, Discover
Financial Services had a market capitalization of $25 billion.
Conventional wisdom to question
Developments to watch
Now innovation is causing the ground to shift in the
payments industry; we just don't know what the timeline These three events put things in perspective. No individual
will be. Today, our industry's conventional wisdom player has a dominant market position in the long run, not
encompasses these ideas: even Visa. Here are examples of current developments
• Visa Inc. has a dominant position due to its strong worth watching.
moat. • The top 250 retailers and the National Retail
• New entrants will not disrupt Visa in the near Federation have actively opposed the proposed
$7.2 billion federal court settlement with Visa. In
term.
May 2013, large retailers filed their own lawsuits
26
