Visa Inc - Research Paper Example

? Visa Inc. BA 301 Final Term Paper Section Number TABLE OF CONTENTS TABLE OF CONTENTS 2 EXECUTIVE SUMMARY 3 POSITION 4 Statistical Overview 5 Network 5 Stakeholders 6 Global Branding 7 SENSE 8 UNCOVER 11 SOLVE 14 BUILD 16 ACHIEVE 18 WORKS CITED 19 EXECUTIVE SUMMARY In particular, Visa Incorporation is under focus of this report that is one of the largest electronic payments network in the world. Since its establishment, the company has been successful in facilitating and promoting commerce and trading on international level by providing platforms of information transfer to business organizations, financial institutions, and even governments globally. The company offers payment platforms and solutions to financial institutions in almost 200 countries of the world by its largest networks of ATMs and other payment processing services globally. However, despite of owning world’s biggest retail business, the company’s model has remained vulnerable to litigations due to various loops in the systems that have caused various challenges and problems for the company. Although there has been increment in demand of Visa cards and services, however, the company is posing many threats, such as legislation issues due to interchange charges, as well as threats from the competitors, such as Discover and American Express. Most importantly, the company is confronting challenges and problems from hackers and supporters of WikiLeaks along with the issue of demands of mobile-payment technology that has put the corporate image and ranking of Visa Inc. at risk. For this reason, the report includes analysis and scrutiny of identified issues and problems that are causing reducing of profits and market standings of Visa Inc. In addition, the report incorporates recommendations and solutions that will enable the company to resolve issues and problems, and it is anticipation that implementation of recommended strategies will allow the company to achieve and fulfill its objectives and vision in the most successful manner. POSITION Visa Inc. (2011) is a company that was founded from the simple idea of digital currency, but had managed to connect millions of businesses, consumers, financial institutions, and even governments to each other in the short while that it has been operating. It allows its customers, in over 200 countries (Visa Inc, 2011) and areas to replace their cash and check transactions to digital transactions. It has a separate network named VisaNet (Visa Inc, 2011) for financial institution clients. VisaNet is a central and modular payments network that offers three important services of “risk management services, information services and transaction processing services” (Visa Inc, 2011) all together in one package. Furthermore, VisaNet (Visa Inc, 2011) is constantly working on ways to improve their service, so that people can utilize the method of electronic payments for several more purposes and in more places, because of the network size and payment expertise. This enterprise also provides financial institutions with recognized payment products, which they use to provide “cash-access, prepaid, debit and credit programs to customers of all types” (Visa Inc, 2011), people as well as state owned and private businesses. This company is the owner of the Visa brand, with their customers crossing several millions and with 1.8 million ATMs distributed worldwide amongst several countries and regions (Visa Inc, 2011). This company remains a frontrunner amongst all electronic transaction companies since the start of its operations. It initialized with credit cards and moved on to offer mobile payments and neural networks, being one of the first companies worldwide to offer such services, thus always remaining updated and developed in an already rapidly changing industry. Considering the large contribution of Visa’s payment platforms to global commerce, its support to all its customers seems invaluable. Visa Inc. (2011) itself does not deal directly with customers in terms of issuing cards or negotiating rates, as these duties are taken care of by financial institution clients themselves. These financial institution clients then pay Visa Inc. a fee, which constitutes its main income. These fees depend on factors like the payment sizes as well as number of customers availing the services of Visa (Visa Inc, 2011). Furthermore, the Visa has enabled its customers to offer many additional services to their clients, prepayments, pay now with debit or later with credit products. Thus, it is the largest network in the world for electronic payments, having transacted a staggering “US$5.6 trillion over the year ended June 30, 2011” (Visa Inc, 2011). Statistical Overview Table 1 indicates networking of Visa Inc: Volume Particulars 15,500 Financial Institution Consumers 1.8 million Automated Telling Machines 200 Countries 1.87 billion Visa cards Table I – Statistical Overview of Visa Inc. (2011) Network The network that Visa (Visa Inc, 2011) has been using for over 30 years, for the purpose of information processing is VisaNet; it helps them transfer value as well as information amongst the millions of clients it has, in consumers, businesses, financial institutions and governments. The highly developed and processed network enables high quality services to all the customers, providing their business with a safe, trustworthy, and scalable processing, including authorization, clearing (Visa Inc, 2011) and settlement and other value-added services. Some of Visa’s most significant characteristics are: Scale — VisaNet processed “over 100 billion transactions (authorization, clearing, and settlement transactions) during the year 2009” (Visa Inc, 2011). Thorough testing and research reveals that VisaNet can process over twenty thousand transactions every second. Reliability — VisaNet has several synchronized processing centers worldwide, each of which provides identical authorization (Visa Inc, 2011). Visa can use these to transfer transaction volume amongst centers if the need arises. Thus, these resources help Visa ensure that they are prepared to meet the growing worldwide demand for electronic transactions. Security — Since Visa is able to monitor each and every transaction taking place through VisaNet’s structure, they are able to avoid fraud by risk-scoring transactions with Advanced Authorization and other such services (Visa Inc, 2011). Value-Added Services — Visa is also able to provide “loyalty programs, alerts, dispute processing, risk management and several other value-added services” (Visa Inc, 2011) due to its centralized worldwide processing platform. For example, VisaNet enables the company to send Visa Alerts, which are real-time notifications, sent directly to a person’s phone or email, when they carry out a transaction from their account. These alerts are sent only for transactions of nature that the account holder has selected, so that they are able to spot any suspicious activity in their accounts right away. Visa also introduced a real-time messaging service to its merchant customers in April, which enables them to SMS chosen consumers about promotions and discounts, which suit them personally. Stakeholders Visa facilitates payments to such an extent that their payment transactions are made at every single second of the day, in over two hundred countries and areas worldwide. There are four main stakeholders for the Visa enterprise: The merchant is any entity — all those stores, hotels and restaurants and other such businesses that accept payment through Visa cards (Visa Inc, 2011). The acquirer is a financial institution client that signs up clients who wish to use Visa to receive payment for transactions, and then ensures that they receive the payments. The issuer is a financial institution that provides signs up individual consumers as well as businesses for Visa-branded cards or other payment products that Visa offers. The process of this is that the entity who issues the card “lends” (Visa Inc, 2011) money to the consumer when they execute a transaction. The issuer then retrieves this loan from the customer’s account directly in the case of debit or prepaid transactions. The account holder is any of Visa’s consumers or businesses who are making use of any of Visa’s products (Visa Inc, 2011). Global Branding Visa Inc. penetrates language barriers, cultural differences, and geographical distances by providing millions across the world with a common medium for transactions, providing them with remarkable convenience. It maintains partnerships which several sports properties such as Federation Internationale de Football Association (FIFA) and the International Olympic Committee, in order to sustain its operations (Visa Inc, 2011). FIFA — The FIFA partnership gives Visa access to several activities or FIFA, such as the 2014 FIFA World Cup Brazil™ (Visa Inc., 2011), which relates to one of the most popular sports of the world. The Olympic Games — Visa has remained partners with Olympic Games for over 24 years, currently maintaining the title of a worldwide Olympic partner, which accompanies an agreement that all transactions held with respect to the Olympic Games until 2020 (Visa Inc, 2011), will be made through payment card and official payment service. This encompasses “the London 2012 Olympic Games, the Sochi 2014 Olympic Winter Games, as well as the Rio de Janeiro 2016 Olympic Games” (Visa Inc, 2011). NFL — Visa’s partnership with the U.S. National Football League (NFL), which will last through the 2014 season, has been extremely beneficial, giving them access to the Super Bowl, NFL Pro Bowl and the NFL Draft (Visa Inc, 2011), through which they are able to further promote their brand and connect with those existing customers who are related sports fans. SENSE Exploring the history of Visa Inc. since it started, shows how successful it has been so far in the retail electronic transactions industry. It has provided the global commerce with massive support by enabling them to transfer both value and information electronically, from merchants, consumers, and businesses to financial institutions and state-owned companies. It mainly serves financial institution clients, who use its processing service as well as its payment product platforms, which include commercial payments, consumer credit, debit, and prepaid transactions. It has three main services, namely the payments network management, product platforms and transaction processing services (Visa Inc, 2011). The success the company has experienced in its operations, however, does not make up for the several problems that it is currently facing. This report will now elaborate on some of the main challenges and problem that Visa is facing. Firs are the antitrust issues (Wildfang & Marth, pp. 674-678), which have been circling the area of credit card networks for several years. This has led to Visa Inc. being entangled in several antitrust lawsuits since the 1970s. This problem does not seem like it will end anytime soon due to its nature. In fact, it seems like the problem will only grow bigger due to the growing antitrust litigation affecting Visa on a regular basis (Wildfang & Marth, pp. 674-678). The Visa networks, however, do not succumb to this pressure, and continue to enjoy market power. This is because their main source of market power remains unscathed, which is the capacity that banks have to work together to determine a fixed rate for the fees that they charge their retail merchants in the United States (Wildfang & Marth, pp. 674-678). Visa also faces much antitrust litigation from competitors, which is beside all the merchant interchange litigation discussed above. This again makes trouble for the four-party networks of this enterprise. In particular, ‘Discover’ and ‘American Express’ commenced their follow-on actions, holding Visa responsible for the loss after denial in “US vs. Visa” case (Wildfang & Marth, pp. 674-678). These cases had a main aim of making Visa as well as their financial institution clients pay damages, a matter, which was further worsened by the judgment of the district court and the injunction, which caused a repeal of the exclusivity system. They may also take unfair advantage of this litigation. They could do so by offering liability releases in exchange for closing profitable business deals with those issuing banks that are no longer bound to refrain from such agreements with third parties (Eichenbaum, 2010). These actions by the American Express and Discover have made a few analysts wary about how they will affect the future of Visa. However, they cannot yet reach any solid conclusions about the effect that it will have on the competition in these related markets (Eichenbaum, 2010). Yet another problem that credit-card company Visa Inc. faces is because of the rising application of the mobile-payments technology. New and upcoming companies like Boku and Obopay have started developing applications, which will enable people to make payments using their smart-phones (Gomes, pp. 32-34). Furthermore, PayPal, an online payment company is currently employing software developers to develop a mobile-payments system for it as well. William Gajda, the official in Visa responsible for mobile innovation claims that Visa still has an advantage over its competitors, as it has more experience regarding fraud prevention. The larger problem here is in relation to PayPal, which is a part of eBay (Gomes, pp. 32-34). Visa had earlier passed up the chance to tap the massive potential market force in the collection of small merchants on eBay. Today, many PayPal customers link their accounts to Visa, which makes PayPal one of Visa’s largest customers (Gomes, pp. 32-34). However, PayPal seems to be enjoying a larger presence now as it grows larger and transforms into a competitor rather than just a customer due to its current pursuit of the mobile payments system. Finally, Visa Europe had to hold its payment activities with WikiLeaks, due to Julian Assange being arrested in London on December 07, 2010 (Edliston, 2011). It claimed that it was looking through its operating rules to find any that had been contradicts, but did not actually do so. Datacell, the IT Company that provides credit and debit card donations to WikiLeaks, meanwhile announced plans to sue Visa Inc. In addition, they faced a DDoS attack on their site visa.com on December 08, leading to the site coming down (European Commission, pp. 1-10). The United Nations Commissioner for Human Rights, Navi Pillay, protested that perhaps Visa is "violating WikiLeaks' right to freedom of expression" (Reuters, 2010) by refusing to serve them, creating yet another problem for Visa Inc. However, Visa stands by its decision until it will have completed its investigation. Diagram I – Fishbone Diagram on Problems faced by Visa Inc. From the abovementioned identification and brief analysis of identified issues and challenges confronted by Visa Inc., it is an understanding that since many years, Visa Inc. is continued to confront the problems of litigation due to various causes, and now, it is time that the company should take considerable steps while confronting this challenge to resolve this issue forever. UNCOVER Since few years, there have been huge advancements in the field of information and technology, and that has resulted in appearance of mobile-payment technological tools on the internet and market. In the result, Visa Inc. is confronting huge problems due to establishment of new business organizations, such as Boku and Obopay (Gomes, pp. 32-34) that are causing hurdles for even market leaders, such as Visa Inc. and MasterCard. In particular, various companies are now putting efforts to offer payment methods that may allow utilization of only smartphones to pay for something. Although in the past, Visa Inc. was not considering such companies, especially PayPal as a competitor because most of them were using networks that of Visa Inc. or MasterCard (Gomes, pp. 32-34). However, recently, companies such as PayPal are endeavoring to acquire software developers that may provide them with software and applications with tools of surpassing the network of Visa Inc. that indicates a major problem for the company. Now, as the report has recognized the major problem, the analysis will now go in further detail by identifying different factors that affect Visa Inc. in terms of mobile-payment technology. Reports indicate that during the year 2010, Visa Inc. made approximately 4.8 trillion dollars in different payment transactions and that is nowhere near to the other payment processing companies. In this regard, there is nothing to fear as far as it is about survival of Visa Inc, as evident from the below-given chart showing the volume of payments processed by different payment processing companies in the year 2010. Diagram II – Comparison of Different Payment-Processing Companies (Hornblass, 2011) However, the major problem lies in the growth and popularity of these alternative payment-processing companies that are offering payment solutions to consumers, and especially, they have now begun to take away customers of Visa Inc. from the internet. Despite of huge success and significant market share of Visa Inc, such alteration in the trends of market needs urgent attention and consideration of Visa Inc, as its ignorance may create a bigger problem for the company in the future. Analysis (Gomes, pp. 32-34) has indicated that in the past, such companies were not of importance for Visa Inc, as they were using the platform of Visa Inc. to process payments; however, the major indication of pressure is that such companies are now acquiring alternative platforms based on newer technological tools to surpass the framework of Visa Inc. In particular, they are doing this with the utilization of smartphones that is creating a huge competitive environment for Visa Inc. based on the number of smartphones that are around 5.8 billion users globally (Gomes, pp. 32-34). As earlier mentioned, mobile payments constitute a very minute segment of global commerce; however, no one says about the future of global commerce industry, and thus, Visa Inc. will have to take significant steps to make sure that it does not confront sudden competition from these minuscule alternative payment-processing companies (Hornblass, 2011). While uncovering this problem, it is an understanding that besides confronting different payment-processing companies, PayPal seems the biggest stone in Visa Inc’s shoes, and reports have indicated that PayPal is putting efforts on approximately two thousand developers and programmers that are focusing on the creation of a very new payment system that will not be needing Visa structure or system. Diagram III – PayPal’s Growth from 2008 to 2011 (Payments Views, 2011) SOLVE In particular, this section of the report will include efforts to indicate possible solutions and identify the best solution or strategy that will facilitate Visa Inc. in continuing its dominance over the payment-processing industry. The foremost solution of this problem will be to increase the number of workforce for particularly mobile payment technology. Analysis (Hornblass, 2011) has indicated that until two years ago, Visa Inc. had only two individuals working in this area. Although there has been an increase in this number, however, to avoid any adverse impact, the very first move should be to focus more on mobile payment projects and higher number of workforce for it that will facilitate the company in moving towards innovation rather than sticking to the conventional technology. Another solution will be to go beyond the notion of pricing by offering value-added tools to the customers, such as fraud management tools, loyalty benefits, etc that will allow Visa Inc to preserve and convey increased value to the clients that will improve the brand and image of the company (Gomes, pp. 32-34). In addition, to come closer to the consumers, Visa can have an edge by resolving conflicts with payment-processing partners that will allow the company to acquire a deeper position in the industry, subsequently, facilitating the company to shift back the power to it. In order to express its commitment towards acquiring dominance in mobile payments as well, Visa Inc will have to ensure investments into the mobile sector to indicate its capability of facilitating secure payments through smartphones. In this process, Visa will have an edge over the other competitors in terms of building trust that it is already enjoying due to its success in the overall payment-processing industry. As Visa Inc. uses VisaNet system (Visa Inc, 2011) to process all transactions in a centralized manner, an effective solution will to introduce and associate new fraud management tools for particularly, mobile payment technology that will facilitate the company in managing transaction flow on global level in an effective manner. However, for this purpose, it will be very imperative that such tools allow real-time scoring of fraud in the transactions unlike usual transactions that give considerable time to Visa Inc. to manage fraud-related issues. Another efficient solution will be to unlock the network for independent developers by ending rigid nature of decision-makers in Visa Inc (Data Monitor, 2010). This step will promote developers from all over the world to create different software adding innovation to the Visa Inc’s network. For this purpose, establishment of an innovative development center will play the role of a group of human tools that will enable the company to connect with consumers and customers in real time scenarios beyond the notion of price and value that will be very essential to resolve the identified problem and achieve success in the mobile-payment technology industry. From identification and evaluation of different alternative solutions for the identified problem, it is an understanding that acquisition of a higher number of workforces seems a short step that can be a part of a bigger and long-term solution. In addition, building trust will be no issue for the Visa Inc. due to its existing success and good image in the market. The major solution for the uncovered problem would be something that will bring the company closer to the merchant by the establishment of a new gateway along with creation of fraud management tools that will solve the problem largely. BUILD As the report has recognized the importance of a new gateway that will be ensuring effective fraud management and a closer coordination and communication with the merchants, it is now imperative to look at different aspects of this solution that will enable the company to implement it in an effective manner. Diagram IV – Feasibility for the Implementation of Gateway Solution Discussion indicates the abovementioned solution will enable the Visa Inc. to acquire its dominance in the area of mobile-payment technology in an efficient manner; however, in order to verify its efficiency, the report will include cost-benefit analysis to evaluate its outcomes in comparison to its expenditures. COSTS BENEFITS Acquisition & Establishment Costs (Approx. two billion dollars) Long-term expansion of online fraud & security management tools Implementation & Integration Costs Balance of conflicts with merchant processors Time required during the Acquisition & Implementation Increased consumer loyalty & growth in Visa e-commerce transactions Recruitment of workforce needed for the solution Enhancement of value of Visa Inc’s network Table II – Cost-Benefit Analysis of Solution ACHIEVE From the abovementioned analysis and feasibility process, it will now be very easy to establish and implement the new gateway (CyberSource, 2011) that will resolve the problem and enable the company to come closer to the merchant processors that will more than e-commerce. The foremost step will be detailed review of the identified solution, in order to acquire a go-ahead signal from decision-makers of Visa Inc. As this gateway will be a new venture, it will be very imperative to recruit and select workforce for the implementation, as well as maintenance of the gateway. Besides, it will be very important for the company to ensure integration of this gateway with existing processes and tools of Visa Inc, and for this reason, the company will have to reduce its rigidity to implement this gateway solution that will benefit the company in an efficient manner. There exist various gateway solution providers; however, analysis has indicated that CyberSource is “the best online gateway and fraud management tools” (Columbus, pp. 190-201) that will provide significant power to Visa Inc. to expand its network in order to come closer to the merchant processors and partners at the point-of-sale. After acquisition and implementation of CyberSource gateway (Columbus, pp. 190-201), it will be very essential to ensure its close monitoring to avoid any glitches and faults in the system, and to ensure efficient running of the network. WORKS CITED Columbus, Louis. Realizing E-Business with Application Service Providers. LWC Research, 2000. CyberSource. Official Website of CyberSource, 2011. Retrieved on August 09, 2011: http://www.cybersource.com/ Data Monitor. Company Profile – Visa Inc, 2010. Retrieved on August 09, 2011: www.datamonitor.com Edliston. “Visa blocks WikiLeaks Europe Donations.” The Stock Market Watch, 2011. Retrieved on August 09, 2011: http://thestockmarketwatch.com/stock-market-news/recent-events/visa-blocks-wikileaks-europe-donations/10396 Eichenbaum, Peter. “Visa says Justice Department weighing Antitrust Suit.” Bloomberg, 2010. Retrieved on August 09, 2011: http://www.bloomberg.com/news/2010-07-29/visa-says-justice-department-is-considering-antitrust-lawsuit-on-payments.html European Commission. Complaint of DataCell against Infringements of Articles 101 and 102 of the Treaty. DataCell ehf, 2011. Frankel, Alan S., Shampine, Allan L. “The Economic Effects of Interchange Fees.” Antitrust Law Journal. Volume 73, Issue 3. 2006: 627-673. Gomes, Lee. “Visa Calling.” Forbes. Volume 186, Issue 7. 2010: 32-34. Hornblass, J. J. “PayPal still Minuscule compared to the Big Boys.” Bank Innovation, 2011. Retrieved on August 09, 2011: http://www.bankinnovation.net/profiles/blogs/paypal-still-minuscule Payments Views. eBay Analyst Day: PayPal World Domination, 2009. Retrieved on August 09, 2011: http://paymentsviews.com/2009/03/11/ebay-analyst-day-paypal-world-domination/ Reuters. Cybergroup: WikiLeaks Attacks will keep coming. Reuters, 2010. Visa Inc. Visa Corporate, 2011. Retrieved on August 09, 2011: http://corporate.visa.com/index.shtml Wildfang, K. Craig, and Marth, Ryan W. “The Persistence of Antitrust Controversy and Litigation in Credit Card Networks.” Antitrust Law Journal. Volume 73, Issue 3. 2006: 674-678. Read More