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Today, Visa offers the widest range of financial services in the bankcard industry. Visa's diverse product line includes credit and debit cards, travelers cheques, Visa stored value cards, corporate and business cards, as well as new, state of the art products such as our online products and services, and the Visa Global ATM Network with over 457,000 ATMs in 120 countries.
Tomorrow, Visa will continue to lead the payments industry as our products and services evolve to meet the ever-changing dynamics of the marketplace. In the future, Visa will continue to advance the use of chip cards in electronic commerce, on the Internet, and in other emerging media to ensure that we remain "The World's Best Way to Pay" for our Members and their cardholders.
Visa International has grown from a credit card company into the largest full-service consumer payment system in the world. With around 600 million cards in circulation as of 1998, Visa boasted the most widely recognized general purpose payment card in the world. Worldwide consumer purchases made with Visa reached around $1 trillion in 1997. In the United States, Visa commanded the majority of the market in transactions made with credit cards. The company also offered numerous products and services in the late 1990s, including debit cards, travelers cheques, and a worldwide ATM network.
The driving force behind Visa's explosive growth was Dee Ward Hock. Born in 1930, the son of a lineman for Utah Power & Light Company, Hock was raised in North Ogden, Utah. He attended a local junior college, married his childhood sweetheart soon after school, and worked in a slaughterhouse and for a brick mason. In the early 1950s, Hock joined the consumer finance department of Pacific Finance Company and soon became a local branch manager.
In 1965 Hock began working for National Bank of Commerce in Seattle, eventually becoming assistant vice-president. At the same time, Bank of America was in the process of licensing BankAmericard, its credit card operation, to other banks. National Bank became one of BankAmericard's first licensees, and Hock was promoted to manager of the bank's credit card program. However, many of the new licensee banks complained of delayed payment transfers and lack of adequate measures to prevent user fraud. At a meeting of over 100 bank licensees in 1968, Hock prodded the members to restructure the entire credit card operation. Hock was elected head of the committee to resolve recurring problems.
Hock influenced an industry with a history dating back to 1914 when the first customer charge card was issued by Western Union. This card provided many different services, including deferred payment for preferred customers. Over the years, a variety of hotels, gasoline companies, and department stores issued their customers charge cards, but the first card accepted by a number of different merchants, the Diners Club Card, was introduced in 1950. Merchants were reimbursed for transactions made with the Diners Club Card by deducting a small fee. Customers were billed monthly for the charges they incurred on the card and were required to pay the full amount of the invoice upon receipt.
In 1951 Franklin National Bank on Long Island issued the first bank-based charge card. The card was accepted only by local merchants, but soon more than 100 other banks were issuing cards. Merchants were charged a fee by the issuing bank for any transaction made with the card, and no fee or interest was charged to cardholders who paid the entire bill upon receipt. However, since these early bankcard systems only served a bank's local area, profits remained low.
Bank of America issued its BankAmericard in 1958. The card was successfully marketed throughout the entire state of California. One new factor essential to its success was the credit service. BankAmericard provided its customers with the option of paying the balance of the account in installments, with a monthly finance charge on the remaining balance, rather than requiring a full payment upon receipt of the bill. Of course, the customer could still pay the full balance of the account for the month without any finance charge.
Soon Bank of America was forming licensing agreements with banks outside of California that allowed them to issue the BankAmericard. At approximately the same time, a consortium of banks from Illinois, California, and a number of East Coast states established another bankcard association and began to issue Master Charge (later MasterCard). In light of the success of these two bankcard licensing associations, most local and regional banks terminated their independent bankcard programs and joined either BankAmericard or Master Charge. By 1970, over 1,400 banks offered one of the two cards, and total consumer charges on the cards amounted to $3.8 billion.
Consortium Revamps BankAmericard in 1970s
The success of Bank of America's credit card operation was accompanied by problems, which Hock, in his capacity as head of the banks' committee, was responsible for solving. He urged the member banks to take control of the BankAmericard program, and in 1970 they created National BankAmericard Inc. (NBI), a consortium of banks that issued the BankAmericard. This independent, nonstock membership corporation purchased the entire bankcard operation from Bank of America over the next few years and then began to administer and develop the BankAmericard system. Hock was chosen to lead the new organization.
Hock headed an entirely domestic bankcard system. Outside the United States, BankAmericard was issued by Bank of America's licensee banks in over 15 countries. In 1974 Hock negotiated the sale of all foreign credit card operations held by Bank of America to IBANCO, a group of bank licensees that formed a multinational, nonstock corporation to administer and develop the international operations of the BankAmericard program. He then made the entire domestic BankAmericard system a subsidiary of IBANCO, and served as this group's chief executive officer.
When it came to Hock's attention that in many foreign countries there was resistance to issuing a card associated with Bank of America, despite the fact that the association was nominal only, he decided to change the name of the card and the company. In 1977 BankAmericard was renamed the Visa card. Hock chose the name "Visa" because it implied no national identification, it was relatively easy to pronounce in any language, and it made no reference to a bank, which Hock thought might limit how customers perceived they could use the card. Concurrently, NBI was rechristened Visa U.S.A., and IBANCO became Visa International.
Under Hock's leadership, customer billings for the Visa card rose dramatically, and worldwide name recognition grew at an astronomical rate. The first Visa Classic card was issued in 1977, and in 1979 Visa Traveler's Checks were introduced. Also in 1979, Visa management began to encourage merchants to use an electronic transaction-authorizing system whenever a purchase was made with the card. Visa terminals read a magnetic strip on the card and automatically requested authorization, thereby reducing retail store fraud by almost 85 percent. The Visa Premiere card was introduced in 1981, and in 1983 the Visa Classic card was redesigned to include a hologram for added security against user fraud. In 1977 Visa's market share of the bank card business was 40 percent and MasterCard International's was 60 percent. By 1983, the market share proportions of each company had reversed, with Visa's billings amounting to $59 billion and MasterCard's billings to $42 billion.
Continued Expansion in the 1980s
In 1983 Hock implemented one of the most important and far-reaching services known in the credit card industry: a global network of automated teller machines (ATMs) that allowed Visa cardholders to obtain cash at locations far away from the banks or credit unions that originally issued them the card. The network provided a cash-dispensing service for travelers carrying the Visa card; after inserting the card into an ATM, the customer received cash from a bank account or from a previously established line of credit. Most of the ATMs were situated initially in places convenient for travelers, such as airports and tourist attractions, but soon ATMs were placed in banks themselves, gas stations, grocery stores, and innumerable other locations.
Visa's ATM network was not well received by the banking industry, since many banks operated their own network of automated teller machines. The Plus System Inc., located in Denver, was owned by 34 banks, all of which were Visa members, and had approximately 950 various financial institutions that operated ATMs that only accepted the Plus card. The banks each invested up to $150,000 to exclude customers who banked with competitors. Thus, while the Plus System and other similar ATM networks worked hard to ensure exclusivity for their members, Hock was implementing a network that would be accessible to customers of all 15,000 member banks of Visa.
Dee W. Hock retired as president of Visa in 1984 and was succeeded by Charles T. Russell, vice-president and longtime employee of the company. Russell immediately defused the animosity between Visa and its member banks over the ATMs. During that year, the Visa ATM network was the first to complete a transnational transaction.
Visa continued its phenomenal growth under the leadership of Russell. In 1986 Visa and MasterCard took a 73 percent share of the $275 billion worldwide charge card market, and their combined transactions totaled $3.9 billion, far more than any other financial services company.
In January 1987 Visa won a contract to operate Interlink, the largest retailer, or point-of-sale (POS), network that accepted debit cards in restaurants and stores in the United States. Already managing the California-based Interlink network of transactions since 1984, Visa was ahead of the competition in the burgeoning point-of-sale business. In February of the same year, it reached an agreement to pay $5 million for a 33 percent share in the Plus System of ATMs. By adding the 13,000 machines from Plus, the second largest ATM network in the nation, Visa provided its cardholders with access to almost one-third of the 68,000 ATMs in the United States. The Plus System was acquired completely by Visa in 1993.
One of Russell's most important strategies to maintain Visa's market share involved a commitment to improve the company's communications network. Having started VisaNet in 1972, a comprehensive communications and data processing network, Russell directly supervised a $16 million transformation of the system from that of credit card transaction to general purpose electronic payment, a system capable of dealing with most types of consumer banking transactions. Aware that the continued success of Visa was dependent upon the connection between its electronic mail systems and data processing networks, Russell initiated a comprehensive redesign of the company's data centers. In 1992 Visa converted its Basingstoke, England, and McLean, Virginia, data centers into global "supercenters" capable of processing worldwide volume from either location. This setup was made possible because Visa incorporated transoceanic fiber-optic cables to upgrade its international communications network. As a result of these improvements, a significant increase in volume occurred while the cost per transaction decreased. In 1992 the number of transactions on VisaNet reached a record 807 per second. The network is now capable of processing 1,100 transactions per second at less than a penny per transaction.
Early 1990s: Market Leader
By 1992, Visa's Gold Card, previously the Premiere Card, had become the most widely used and best recognized credit card in the world. Indeed, by all measures of success, 1993 was a banner year for Visa. Total worldwide billings under the Visa name amounted to over $500 billion; more than 300 million cards were issued to customers around the world; more than six billion card and cheque transactions were made, with travelers cheques alone growing to a worldwide sales volume of more than $16 billion; and Visa operated more than 160,000 ATMs in 60 nations.
An aggressive marketing campaign conducted against Visa by MasterCard in 1991 and 1992 appeared to pay off by March 1993. For the first time in 14 years, MasterCard reported a gain in its U.S. market share for charge-card spending, up to 26.8 percent, while Visa's market share decreased from 45.3 percent to 45.1 percent. The competition between Visa and MasterCard, however, was friendly because almost all the banks that owned the MasterCard association also belonged to the Visa association, and no one bank benefited from a gain in market share by one at the expense of the other.
Visa's primary competitor for both the U.S. and international markets was American Express. Whereas the Diners Club card held a 2.2 percent market share of U.S. charge-card spending in 1992 and the Sears Discover card a 6.5 percent share, American Express maintained a 19.4 percent share and was working hard to increase it. Both Visa and American Express intensified the competition for a larger U.S. market share by using the concept of "ambush advertising" in their commercials. Visa, as one of the major sponsors of the 1992 Olympics, used its television ads to remind viewers that the Visa card was more widely accepted than American Express. American Express, for their part, featured an Olympic theme while using a clever play on the word "visa" to promote its own card at Visa's expense.
American Express's advertising did not gain any market share for the company. In fact, American Express lost ground in the early and mid-1990s, with its global market share falling to 13.4 percent in 1992 and down to 10.4 percent in 1995. In addition, merchants who accepted the card fell over the same period. In an effort to increase market share, American Express introduced a bank credit card of its own. Visa, however, thwarted this attempt in the United States by establishing an internal bylaw that banned its members from issuing the American Express card.
When the battle for market share refocused in Western Europe, Visa attempted to introduce a similar bylaw for its European member banks in 1996. American Express had already arranged with several banks in Portugal, Greece, and Israel to offer its card and fought the proposed bylaw through the European Commission. When Europe's competition commissioner announced that Brussels would not accept the bylaw, Visa backed down. In June 1996 it decided not to restrict member banks in Europe from issuing cards that competed with Visa. With credit card usage on the rise in Asia, however, a similar battle was on the horizon.
New Products and Services in the Mid- to Late 1990s
In the mid-1990s Visa developed new products and services that met with varying degrees of consumer enthusiasm. In 1994 the company acquired Interlink, which provided Visa with an online banking service it could offer around the world. A joint venture with Microsoft to offer home banking services and create related software did poorly against Intuit and other competitors in its first few years.
Much more popular was Visa's debit card, a payment option that gained a great deal of momentum in the 1990s. Payments made with the debit cards were withdrawn from the holder's checking account and no interest payments were levied. Visa invested heavily in another new payment option, the chip-based "smart card," with much less satisfying results. Although Visa had endorsed the chip technology in 1992, it did not offer the card until 1996. Named Visa Cash, the card electronically stored money to be used as cash. Consumers could load money onto the card by transferring money from a checking account to the card at an ATM. To encourage member banks to transfer from magnetic stripe cards to the new technology, Visa instituted the Partner Program in 1997. Tests with the card, however, were not encouraging. In a 1998 trial by Citibank and Chase Manhattan on the Upper West Side of Manhattan, consumers rarely loaded their cards a second time. "Smart cards are a technology chasing a business case," Richard Speer, CEO of the financial consulting firm Speer & Associates, told the New York Times in 1998.
Visa encountered a couple of setbacks in 1997 related to new shopping services on the Internet. Visa and Yahoo, the largest Internet search engine, had reached an agreement to jointly develop an Internet shopping site. Yahoo canceled the agreement in September 1997, costing them $20.5 million. The same year Visa postponed the full introduction of a secure Internet purchasing system. The system, dubbed the Secure Electronic Transaction (SET) protocol, would make electronic money transactions safe through the use of encryption, digital certificates, and digital signatures. In August 1997 Visa began the world's largest pilot program for secure electronic commerce using the SET protocol.
In 1998 federal regulators filed an antitrust suit against Visa and MasterCard, charging that their bylaws preventing member banks from issuing competing cards were creating an uncompetitive marketplace. Visa fought the suit, claiming intense market competition existed. "We believe the suit filed today by federal regulators will fail in a court of law," Paul Allen, executive vice-president and general counsel for Visa U.S.A., said in a press release. "Because, when it comes right down to it, consumers have unlimited choices when it comes to credit cards."
In the late 1990s, Visa's focus was on developing its foreign operations, increasing its debit activity, and improving its technological infrastructure. Despite problems with its electronic cash card, the introduction of its SET protocol, and the federal antitrust suit, Visa operated the largest and strongest consumer payment system in the world.
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