How Visa's digital services strategy is coming together
As the pandemic and economic downturn take their toll on consumer spending, the card companies are relying on scale, partnerships and subsidiaries to turn consulting, security and fast technology deployment into new and sustainable revenue streams.
The trend is apparent at Visa’s office in Miami, where Ruben Salazar held up an old payment terminal on a video call as testament to a relic of the past — albeit a past that’s not so distant.
“If you look at this machine,” he said, pointing to it, “ten years ago the industry was very simple. You required plastic or something like this terminal,” said Salazar, the senior vice president of product and innovation for Latin America at Visa. “Today there’s authentication and security and tech projects. How are you going to make sense of all of that technology if you’re an issuer or an acquirer, if you’re going to compete in a more advanced ecosystem?”
Visa added a cog in that effort last week, agreeing to acquire YellowPepper, which will help Visa expand tokenization and expedited payment processing in Latin America. Much like deals Visa and Mastercard made in 2019 to acquire Earthport and Transfast to quickly scale relationships with companies looking to digitize international commerce, the YellowPepper acquisition has more in mind.
YellowPepper will serve a need to allow banks to offer a single experience for a variety of needs, even those that involve other payment companies like American Express or Mastercard. The goal is less about gaining payment share than it is enabling two tiers of digital commerce, at the bank and merchant level, without ripping up core systems.
“There could be a need to develop QR codes, NFC, in-app payments or all of those,” Salazar said. “There traditionally has been a fragmentation in the way these banks have operated, using multiple solutions to support different payment types.”
The cloud helps banks improve digital payments and risk management without having to replace their core processing systems as part of the upgrade. These services can then be passed on to merchants that can support omnichannel commerce without requiring multiple logins.
That’s been the goal of card brands for the past few years, as well as bank technology vendors like Fiserv and FIS, which have acquired payment processing companies to round out their menu of services. But as the economic downturn and virus workarounds drag on, there’s an onus on the card brands to lighten the deployment model for clients while accommodating a temporary decline in payment revenue.
Additionally, the trend toward e-commerce relies less on point of sale payment processing and more on cloud and API-delivered systems that support risk, marketing, and payment processing and hookups to mobile wallets like Apple Pay and Samsung Pay, along with PayPal and other wallets local to different countries.
“Today if you want to integrate an ACH payment or a Swift payment or VisaNet, you have multiple technology developments if you are a bank. What YellowPepper does is it eliminates that complexity,” Salazar said. “Integration is always a challenge, because if you want to touch the bank’s core system it may take a long time.”
Both Visa and Mastercard view this move to services, or value-adds, as an important part of the recovery from the pandemic and the economic downturn, as well as a way to position for future growth. Mastercard and Visa touted “services” as a contributor to earnings in the most recent quarter, and Visa CEO Al Kelly called out YellowPepper and earlier Visa acquisitions such as Cardinal Commerce as examples of how companies that don't directly process payments can automate other parts of a bank or client's menu of services.
Thus, YellowPepper is more than a Latin American play — it is a baseline for technology integration that can work in other markets. "These needs that banks have, exist in all markets," Salazar said.
Mastercard in recent months has partnered with Microsoft to power cloud delivery and artificial intelligence, combining Mastercard Labs and Azure to build new use cases for digital payments and shipping that reside outside of Mastercard's traditional card payment role. Mastercard and Microsoft have also collaborated on digital ID to enable authentication for payments and non-payment access to government facilities and other buildings.
“Card networks must diversify their service offerings to compete with other card networks and other payment systems — or risk losing market share,” said David Shipper, a senior research analyst at Aite, adding there’s an advantage for the networks in this area. “Change occurs so rapidly in payments that card networks appear to make services more readily available to global banks and fintechs, possibly because some card processors or core platforms cannot implement innovation as quickly as card issuers prefer.”