Visa / Visa Europe

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By some standards, Visa would qualify as the world's single biggest business. During 2012, the organisation processed sales worth around $6.5 trillion. Virtually every individual reading this paragraph either owns or has used a Visa card. There are currently more than 2 billion of them in circulation worldwide, and the company more or less invented our modern world of cash-free payments without boundaries. Literally hundreds of other businesses (including Dell and Amazon) would probably not exist had it not been for Visa's innovation. Despite high profile marketing battles against rivals MasterCard and American Express, Visa remains the world's leading provider of payment solutions, and by quite some margin. But it is also arguably the world's best-known unknown. Few of its customers could say who owns it, where it is based, or perhaps even what exactly the company does. 

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 20th Oct 2016: Charles Scharf resigned as CEO of Visa to spend more time with his family, which is still located in New York. “I love working and running this great global company," he said in a statement, "and I am sad to have reached the conclusion that I should step down, but running a San Francisco based company just doesn’t work for me personally right now and wouldn’t be fair to Visa." He will be replaced from December by current Visa board director Alfred Kelly, a former president at American Express.

Adbrands Weekly Update 5th Nov 2015: Payment processing giant Visa announced plans to reacquire its former subsidiary Visa Europe for up to E21.2bn in cash and stock. The two groups have discussed a re-merger several times in recent years. Visa Europe was spun off as a separate business in 2007 when the remainder of what was then a bank-owned cooperative filed plans for an IPO as a public company. This re-combination will provide a significant windfall for Europe's banks, who will share the proceeds of the sale between them. The merger is expected to complete in Spring 2016.

Adbrands Weekly Update 27th Aug 2015: Starcom MediaVest was awarded the global account (excluding Europe) for Visa in a shoot-out against incumbent OMD. It gives Starcom its 5th big media win this quarter, though those gains were offset by one even bigger loss (Coke North America). Visa Europe - currently a separate company - keeps its business with MEC.

Adbrands Weekly Update 30th Jul 2015: Visa made its most outspoken comments to-date on the bribery scandal engulfing global football association FIFA. Visa CEO Charlie Scharf said the continuing presence of Sepp Blatter as FIFA chairman pending an election proposed for some as yet unconfirmed date next year was "wholly inadequate" and demonstrated the organisation's "lack of awareness of the seriousness of the changes that are needed". He implied that Blatter should step down immediately in order to retain Visa as a cornerstone sponsor. Separately, on the back of strong results for its 3Q, Visa is in talks to reunite with Visa Europe, currently an entirely separate company still owned by its partner banks. It split off from what was then Visa International in 2007 ahead of the main group's IPO.

Adbrands Weekly Update 4th June 2015: FIFA sponsors welcomed the surprise resignation of embattled president Sepp Blatter in the wake of the ongoing corruption investigation, but repeated demands for urgent action to reform the organisation. "This is a significant first step towards rebuilding public trust," said Visa, "but more work lies ahead... it is our expectation that FIFA will take swift and immediate steps ... to quickly rebuild a culture with strong ethical practices that will restore the reputation of the games for fans around the world." Coca-Cola, Adidas, Hyundai, McDonald's and Budweiser issued similar messages, acknowledging Blatter's resignation as a "positive step" but calling for prompt and decisive action within FIFA to introduce "transparent compliance standards in everything they do". Only Russian energy giant Gazprom, worried no doubt about the cloud now hanging over the 2018 World Cup in Russia, was neutral in its reaction. "Blatter did a lot for development of soccer," said a spokesman. "He’s a very vivid and ambitious person." A change of president would, the company said, make no difference to its sponsorship position. 


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Background

Free for all users | see full profile for current activities: The seeds of the Visa concept were first sown in 1958. That year the Bank of America, then the world's largest financial institution, began issuing the first credit card to its customers in Fresno, California. The Diners Club card had launched in 1950, and American Express launched its first card in 1958. However both of these were "charge cards", which required cardholders to pay off their entire balance at the end of each month. The BankAmericard was the first scheme which allowed only partial repayment of the balance. To kickstart the scheme, Bank of America mass-mailed around 60,000 unsolicited cards to virtually every household in town. However there were several hurdles to overcome. For a start, the concept of buying with plastic was largely unknown among ordinary households, and many consumers were highly suspicious of this apparently free credit. Compounding this problem was the fact that comparatively few retail outlets accepted the card. Yet Fresno's inhabitants promptly went shopping, racking up around $59m of purchases (around $350m in today's money) over the following 12 months. Americard was extended to all of California in 1959.

Gradually of course the concept of playing with plastic took off, and by the early 1960s had even become reasonably profitable. In a bid to extend its business, Bank of America began franchising its system nationally to other banks. At the time, US banks were prohibited from having branches outside their home state, so California-based BofA selected one bank from each other US state to serve as its local partner in that territory. Inevitably this spurred rival organisations into action as well. Banks excluded from the Americard scheme formed their own rival groups. All this seemed like a good idea at the time, but it was to prove a financial disaster since there was no suitable technology to ensure the validity of any of these new cards. Worse still, cards were issued to literally anyone. Between 1966 and 1970, more than 100 million unsolicited credit cards were sent out by the country's various banks. Famously, some banks began sending out cards at random to names off mailing lists, with the result that cards were even issued to children or family pets. In one Chicago mailing, the city's newborn babies all received their own credit card. Fraud was widespread, and within two years, several of the banks were on the verge of collapse as a result of huge bad debts. However the largest of Americard's competitors, Interbank (later MasterCard), was quick to extend its footprint into the international sector as well as the US, and had become the bigger player by 1968.

In 1970, in a bid to prevent the huge losses suffered by some of its partners, National BankAmericard was established as a separate company, jointly owned by Bank of America and more than 240 licensee banks around the country. Management of the business was entrusted to CEO Dee Hock, who conceived the decentralised structure which continues virtually to this day. This was designed to accommodate the daunting central paradox of the business, which was that these banks were all fiercely competing with each other for customers, but would need to work together to ensure the effectiveness of the credit card scheme so that retailers and customers could trust in it. Banks were given the freedom to be as competitive and innovative as they wished with their Americard offering, provided they worked together on fraud protection, payment systems and brand marketing. In fact, against the odds, the system ended up working almost perfectly. Hock also pushed his team to develop ever more effective transaction systems, gradually closing the gap with Interbank during the 1970s.

In 1974, Americard followed Interbank into the international market. However customers outside the US didn't take to the BankAmericard name, and in 1976 the company rebranded as the more internationally appropriate Visa. More important still was a breakthrough in the development of Visa's retail network. Until then many of the biggest stores in the US still refused to accept third-party credit cards. The change came in 1979, when Visa finally persuaded JC Penney to accept its cards. Montgomery Ward and Sears, then the country's #2 and #3 retailers, followed suit and by the early 1980s, Visa had overtaken MasterCard (as Interbank was now known) as the world's most widely accepted credit card. However, as both credit card suppliers expanded their international networks, they faced growing pressure from member banks, who were themselves unhappy about having to choose between the two companies. During the 1980s the two rivals agreed a truce, allowing member banks to offer both payment services. At the same time, Visa pushed aggressively into new areas, issuing debit cards and travellers cheques, and then acquiring a share in several ATM networks worldwide to rival even the biggest bank's coverage. In 1988 the company became a major sponsor of the Olympics, beginning a relationship now extended until 2012.

As competition between banks intensified during the 1990s, Visa and MasterCard saw a new threat in moves by American Express to increase its share of the credit card business. In 1996 Amex agreed a deal with Advanta Corporation to offer American Express Optima credit cards to its members. However Advanta was also a Visa and MasterCard member. The credit card companies responded by issuing guidelines prohibiting their members from working with American Express or smaller rival Discover. This inevitably led to a lawsuit from the latter, and a subsequent investigation by the US Department of Justice. In 2001, a federal court decreed that Visa and MasterCard should not be able to prohibit their member banks from also issuing cards for American Express and Discover. However the big two continued to hold up implementation of this ruling with a series of appeals. These were finally overturned in 2003, and the following year American Express sued for damages over the attempted boycott. Visa eventually agreed to settle the claim in 2007, agreeing a payment to American Express of $2.25bn over three years.

The apparently close relationship between the two credit card suppliers led to a number of further cases. In Europe, the companies were accused of prohibiting competition by artificially fixing transaction fees on international payments. Visa agreed to make a reduction in rates in return for a five-year exemption from further investigation. Similar allegations in the US forced both companies to offer rebates in early 2003. Meanwhile an even more serious suit was brought by a consortium of more than 4 million US retailers, among them the mighty Wal-Mart, claiming that Visa and MasterCard had established an artificial monopoly on debit cards. During the 1990s, in order to ensure the success of their own debit cards, which carried higher transaction charges than rivals, Visa and MasterCard forced retailers to accept the cards or be dropped from their credit card program. Facing the risk of substantial financial damages from losing the case, MasterCard was the first to fold, agreeing to settle out of court just before the case went to trial in April 2003. Left to face trial on its own, Visa was forced to follow suit a few days later, agreeing to pay the retailers about $2bn in combined damages over several years. The company also waived its "honour all cards" policy, and said it would significantly lower its fees for processing debit card transactions. 

Shortly afterwards MasterCard began a campaign to persuade Visa's regional members to switch allegiance. Visa responded by introducing a new "exit fee" structure for its members, designed to penalise any banks tempted to resign their Visa affiliation. Meanwhile, following a refusal by the US Supreme Court to hear any more appeals over the American Express/Discover ruling, American Express issued its first joint card with member bank MBNA at the end of 2004.

A new legal battle erupted in 2005 when large US retailers began filing suit against both Visa and MasterCard, accusing the pair of colluding over the fees charged to merchants for processing credit card payments. Many smaller retailers also joined the suit, which rumbled on for several years. It was finally resolved in favour of the merchants in summer 2012, with Visa, MasterCard and their card-issuing partners banks forced to pay a total of $7.2bn in cash and merchant fee rebates. The agreement will also allow merchants to charge an additional fee at their own discretion if their customers choose to pay by credit card rather than cash. See full profile for current activities


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