Visa positions itself for m-commerce
On 22 April 2010, Visa announced that it will acquire CyberSource, a provider of online payment and security services, for $2 billion in cash. Aside from being good news for CyberSource shareholders, the deal turns Visa into a direct player in the increasingly important area of payment processing for e-commerce and – crucially – m-commerce. Visa’s move is part of a trend among the card networks to branch out into new areas, which in itself is driven by the need to secure future growth potential and to avoid being blind-sided by potential new market entrants (as happened with PayPal).
Acquiring CyberSource changes Visa’s position in the payment value chain
As Visa Inc’s CEO confirmed in a conference call about the CyberSource deal, Visa has – quite rightly – been worried about new market entrants in the all-important e-commerce space, and “concerned that it would have an effect on our market share.” Visa’s acquisition of an online payment processor and services provider marks a radical change in the network’s position in the payment value chain, and is a clear stake in the ground when it comes to defending (and potentially regaining) market share in online payment transactions, where the card networks’ share is lower than in the bricks-and-mortar world.
But there is more to it: the acquisition will not only give Visa a direct relationship with merchants, but will also put it in a better position to expand internationally. In many countries, fears of fraud and lack of trust in making payments online are much stronger than they are in the US and UK, and have been holding back take-up of e-commerce. CyberSource’s solution portfolio in conjunction with the Visa brand is a powerful combination to overcome those worries; and of course CyberSource already has an international network of online merchants. And last, but by no means least, Visa will have ready access to value-added services to offer to merchants which it would otherwise have to develop itself. Only time will tell whether Visa can successfully make the transition from its current business model and focus on bricks-and-mortar retailers. However, this deal, which is expected to close in 3Q10, means that the array of forces in the online payment market has changed: it positions Visa alongside PayPal as a frontrunner in the race for future domination of e-commerce and m-commerce transactions, while at the same time putting MasterCard at potential risk of being left behind in the battle for consumer payments in cyberspace.
Visa’s move is part of a wider trend
Visa’s announcement of the CyberSource acquisition came hot on the heels of MasterCard’s announcement on 15 April that it was launching MasterCard Labs, a new division designed to develop and bring to market new payment products and services. Planning to invest tens of millions of dollars in this new division, MasterCard – like Visa – is aiming to ensure that it is in a position to counter the potential threat from new market entrants. American Express made a related move in November 2009, when it announced that it would spend $300 million to acquire Revolution Money, an alternative payment provider founded in 2005.
Both the Visa and American Express acquisitions provide their respective new owners with a whole host of ready-made additional payment service capabilities that can be offered to the wider marketplace, and in Visa’s case also ready access to 295,000 merchants. MasterCard’s announcement is focused more on future developments, but some of MasterCard Labs’ core capabilities are also founded on an earlier acquisition – Orbiscom. The fact that the former chief executive of Orbiscom is now heading up the new division indicates that there is likely to be a strong focus on the development of services that provide cardholders with new features and functions. The ultimate goal for all of the card networks: avoid losing customers (and hence transaction traffic) to more fleet-footed newcomers. Only time will tell whether they succeed.
With Thanks to Ovum
.jpg)