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SAN FRANCISCO (AP) — Al Kelly believes there is lasting change in the way consumers around the world pay for goods and services. His 91-year-old parents are a prime example of this.
The CEO of payment processing giant Visa recently visited his mother right after she finished shopping online – something she had never done before COVID-19.
“He told me, ‘I can’t believe I didn’t do this before the pandemic,'” Kelly said in an interview with The Associated Press.
Kelly has served for more than five years as president of one of the world’s largest payments companies and arguably one of the world’s most recognizable brands. Since the takeover, stake in the company has tripled as most of us pay with Visa’s credit and debit cards—a trend fueled by the pandemic as once-cash-only establishments have started accepting plastic and shoppers are starting to transact more online.
But while the move to online shopping has helped Visa’s profitability, the company is facing new forms of competition, particularly from Silicon Valley, which has launched alternative forms of payment circulating on traditional Visa and Mastercard networks.
The company also drew backlash from Washington, where skeptical policymakers questioned Visa’s dominance in the payments industry. Visa has abandoned its intention to acquire Plaid, a company that helps merchants and banks better accept online payments, after the Justice Department filed a lawsuit to halt the merger, citing antitrust concerns.
Visa does not issue credit or debit cards. It is a payment processor that provides the network between the card issuing bank and the merchant accepting this card as payment. In return, Visa charges a fee that amounts to billions of dollars in profits and revenues each year for every transaction executed on its network.
During the pandemic, more consumers have become comfortable buying routine products online or with their smartphones to avoid risky face-to-face interactions. This was particularly evident in traditionally cash-heavy parts of the economy, such as grocery stores, cafes and bars.
Kelly cited the growth in debit card usage during the pandemic as an example. Debit cards are often considered the cash equivalent in the payments industry – they can be used to purchase items as well as withdraw cash from an ATM. Last year, debit card purchase volumes on the Visa network increased by 23% compared to a year ago, while cash withdrawals increased by only 4%.
“People prefer not to take cash to shop, but now use debit cards to shop,” he said.
Any deviation from cash and digital payments will ultimately be good for Visa’s profitability. Even shifting 1% or 2% of consumers’ payments from cash to credit and debit cards can result in tens of billions of dollars in additional transactions passing through Visa’s network.
Talking about the size and scope of Visa often requires dealing with numbers reserved for describing the federal government. Visa processed $10.4 trillion in payments on its network in the fiscal year ending September. This is roughly 16% higher than in fiscal 2019 before the pandemic disrupted global trade and travel. The only payment processor larger than Visa is China’s UnionPay, which enjoys as a payments monopoly backed by the large Chinese population and the world’s second largest economy.
For decades Visa and its primary competitor Mastercard have held the dominant position in the market for how people pay for goods and services, and American Express is a distant third. But the duo is challenged by Venmo, Affirm, PayPal and other fintech companies that now offer payment services to both customers and merchants. Apple operates its own payment system. Cryptocurrencies like bitcoin, etherium and others still hold the promise of being alternative forms of payment outside of the traditional banking system.
In short, how to pay for goods and services is not as simple as “cash or credit” – with the Visa, Mastercard or American Express loan options – as it was five years ago.
Kelly sees Visa’s ubiquity as one of its strongest selling points as competition increases. Staying true to its old advertising slogan “anywhere you want to be” Visa has spent years building the infrastructure and merchant network to accept its cards.
“There will always be new forms to pay for, but they will still need an infrastructure that creates the benefits and security they need,” he said.
But the growing competitive space for payments has caused some merchants to question whether Visa’s armor will be weakened. Merchants have long been bothered by the fees they pay processors – typically between 1% and 3% – to accept credit cards. It is often a retailer’s largest expense, after payroll and the cost of purchasing merchandise. Merchants have previously used their collective power in Washington to limit fees on certain types of transactions, particularly debit cards.
Amazon said it would stop accepting Visa credit cards issued in the UK early next year, saying Visa’s fees are too high compared to Mastercard and other payment processors. Visa withdrawn. Visa and Amazon have a co-branded credit card up for renewal soon, and Amazon may be looking for leverage.
“Consumers should be able to use their Visa cards wherever they want,” Kelly said. “No one wins when a trader restricts the choice. In this case, the trader does not respect the consumer’s choice.”
Industry analysts and investors have taken the Amazon controversy as a sign that Visa may face increased competition in the coming years, or that it may face future conflicts with major merchants who are uncomfortable with the fees they pay Visa and Mastercard for using their own payment networks. Visa shares are down more than 7% this month alone.
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This story has been corrected to say that Amazon will stop accepting Visa credit cards issued in the UK from early next year. An earlier version erroneously reported that Amazon had stopped accepting cards.
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