For a time, the European payments market was considered fertile ground for the creation of a third card network to compete against heavyweights Visa Europe and MasterCard.
This third network never came to be, but European banks kept the idea on the back burner as a way to compete against or even bypass the major card brands. Visa Inc. executives considered the notion to be a realistic enough threat to add a caveat to their Visa Europe buyback contract that would discourage Europe's banks from creating a third wheel.
"Visa made sure that a third scheme wouldn't happen by having part of the purchase price contingent on Visa Europe's performance," said Gil Luria, analyst with Los Angeles-based Wedbush Securities.
Indeed, Visa Europe's members stand to earn a cash payment of up to €4.7 billion, depending on performance, an amount that would bring the total acquisition cost to €21.2 billion (US$23.4 billion). Visa announced its plan to reunite with Visa Europe on Nov. 2.
"If Visa doesn't actually get all of the benefit from the revenue from Visa Europe, the banks that sold Visa Europe won't get paid the full amount," Luria said.
Over the next five years, the European banks "have a disincentive" to create another network, he said. "Visa solved that problem of other networks by doing it that way," Luria added.
The European Central Bank and European Commission were the first to suggest another card scheme nearly a decade ago in hopes it would boost the Single Euro Payment Area initiative and change a fragmented domestic-only debit card market. The central bank also feared Visa Europe and MasterCard would be monopolies that would represent the only SEPA-compliant options in Europe.
Those fears have persisted, as evidenced by the commission's ongoing regulatory battles with the card brands over interchange and other practices. These fears may get fueled by the additional resources Visa Inc., of Foster City, Calif., plans to pump into Visa Europe.
"There is a risk that the Visa Inc. acquisition might reopen the calls for a third European card scheme," said Zil Bareisis, a London-based senior analyst for research firm Celent.
Three years ago, Celent concluded that the opportunity for a third European card scheme had passed and that it was "time to move on."
"I still today stand by the conclusion that time has passed for a third card scheme, and would hope that the European banks will find a better use for their financial windfall from this transaction than trying to create a new pan-European card network," Bareisis added.
Discussions about a third card payment scheme in Europe have always been politically motivated with "no particularly clear business rationale," Bareisis said.
When plastic cards were the only form of electronic payment, it made more sense to consider a possible third scheme, Bareisis said. "Now, as digital and real-time networks between bank accounts emerge, the world is rapidly moving on."
Regardless of the ability of the banks to agree on how a third scheme would operate or whether the European Payments Council would support such a network, Visa Inc. also likely didn't want to see many more banks focusing on mobile payment initiatives designed to bypass the card networks.
Visa Europe has been involved in a bank-operated mobile system plan in Poland, where nine banks collaborated to develop a mobile payment system that linked to customer bank accounts and left plastic cards out of the equation.
In January 2015, six of those banks revealed that part of the mobile payment initiative would include a Visa Europe-backed contactless Near Field Communication- and cloud-based service. Visa Europe's ownership comprises more than 3,000 banks and payment services providers.
As a result of the Visa buyback, Barclays is in line to get the largest payout at an estimated $2 billion, based on its handling of 10% of Visa Europe's payments, according to the Financial Times.
Barclays has been one of the most active banks in the world in the development of bank-branded mobile and digital payment technology. But the issuer's efforts focus on bringing more transactions through payment cards and the Visa Europe brand.
As Visa and Visa Europe reunite, Visa CEO Charles Scharf said much of the focus will be on expanding and developing new technology.
With the two companies operating as a single global entity, customers can expect more advancements in security, said Julie Conroy, research director and fraud expert with Boston-based Aite Group.
"Visa Inc. has a very strong fraud and security team, but as we know, the fraud rings are quite innovative and nimble themselves, so bringing together these two strong competencies can only be positive," Conroy said.
Visa and Visa Europe had to operate with "a bit of a wall between the two in the past by necessity" because they were limited in the extent to which they could share information for fear of running afoul of antitrust rules, Conroy added.
"Being able to fully open up the lines of communication and share data and research and development dollars should be a strong synergy that results from this acquisition," Conroy said.
The real opportunity for Visa will be streamlining Visa Europe's operations, reducing expenses and getting prices back up in some areas to create a better value for company shareholders, Wedbush's Luria said.
"They have been working together forever, but were just owned by separate entities for years," Luria added. "It will not be hard for Visa to integrate with Visa Europe, but it will be very hard work to make those operations more efficient, and laying people off is always very difficult."