Visa, Chase Merchant Services Deal Signals Potential Power Shift

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JPMorgan Chase & Co. has positioned its merchant processing unit to provide far more services to merchant clients through its 10-year partnership with Visa Inc., a deal which potentially shifts more power to the issuer.

By the end of 2013, Chase will launch the Visa-powered Chase Merchant Services payments platform. The Chase Merchant Services deal "shows that Chase had an upper hand this time far more than it has in the past," says Eric Grover, payments industry consultant at Minden, Nev.-based Intrepid Ventures.

As such, the partnership is a testament "to the change of power between an issuer and network," especially when viewed in combination with Visa's recent decision to lift restrictions that kept merchants from encouraging consumers to use a specific bank-issued card through a discount offer, Grover says.

As part of the agreement, JPMorgan Chase will shift additional credit and debit card volume to Visa, driving more transactions on the Visa network.

"We look forward to expanding our partnership with JPMorgan Chase and further driving the migration to electronic payments," William Sheedy, Visa's group president for the Americas, states in a press release. 

Visa would not provide further comment for this story, but the company has said it is making moves to be more flexible with its bank and merchant partners.

"If you go around and talk to issuers, acquirers, merchants, we can be a little too rules-oriented," Visa CEO Charlie Scharf said in an earnings call this month. "And so we've got to figure out how we become less focused on rules, while preserving what's important to keep the integrity of our network in place."

Scharf similarly cast the new digital wallet as a move to support banks, rather than sidestep them.

Visa stands to benefit from the JPMorgan Chase agreement by locking in its largest issuer for several years and generating licensing fee income, while establishing a service in which merchants may be able to negotiate fees, according to a Feb. 26 brief to investors from Tom McCrohan of Philadelphia-based Janney Montgomery Scott LLC.

However, the deal "pushes Visa's brand and value further to the back-burner with Chase" and could potentially irritate other Visa issuers if they felt the Chase arrangement puts them at a competitive disadvantage, the Janney brief adds.

"Over the long term, the network delivers more value and an issuer wants to piggyback onto that brand," Grover says. "But imagine the reverse in which Chase, Citi or Bank of America is issuing 95% of all Visa cards."

Under that scenario, the value of the network is much less, Grover says.

"This is a case where Visa accommodates the issuer with the power," he adds.

The partnership between Visa and Chase Paymentech is designed to accelerate the growth of electronic payments, deliver added value to merchants and provide a better experience for cardholders, JPMorgan Chase stated in a Feb. 26 press release.

"It will enable Chase to build direct relationships with merchants… and to negotiate pricing," Eileen Serra, the CEO of JPMorgan's card services unit, said during a presentation to investors today at its New York headquarters. JPMorgan Chase did not respond to a request for comment.

The new Chase/Visa platform will process transactions initiated with Chase-issued Visa cards at merchants the bank enrolls in Chase Merchant Services, the bank states.

The extended partnership with Visa comes only a few months after Chase acquired merchant-offer provider Bloomspot Inc., a deal which falls in line with the creation of a merchant services sector for the company.

It is too early for Chase to disclose what its merchant services arm would provide, but Chase Paymentech likely is now positioned to get into various mobile payment services in the same manner as Bank of America Merchant Services, a joint venture of Bank of America and First Data.

Bank of America announced late last year that its merchant services venture had developed a Square-like card-swiping device for smartphones called Mobile Pay on Demand.

In addition, Bank of America Merchant Services last summer introduced an iDeals online portal to allow merchants to more easily offer daily deals through search engines, social media sites and other online forums.

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