Visa brings faster payments to a market that may not need it
In the U.S., Visa Direct has emerged as one of the few go-to tools for fast payments in a market that is overdue for such options. The product's true test begins now, as Visa launches it in Europe, where faster payments options are far more plentiful.
Among Visa's biggest challenges will be Mastercard, which zoomed ahead with a series of strategic acquisitions that included VocaLink, a powerhouse that’s already driving faster payments in many global markets.
On its home turf, Visa Direct has found an eager audience in the gig economy, where new business models such as ride-sharing come with a pressing need to provide payment as soon as services are rendered. In Europe, Visa will work with Worldpay to bring Visa Direct to merchants with support for person-to-person payments, corporate disbursements and business-to-business payments.
The problem is that Visa may be too late to make a bold showing with speedy card-based payments in those categories in Europe, which already has a mature, streamlined system for instant bank-based payment options across consumer and business channels that are low-cost or free and—in most cases—faster than Visa Direct, experts say.
By October 2018, Visa will require issuers to deliver funds to cardholders within 30 minutes, but even that may be too slow for the European market.
“Visa Direct necessarily takes the detour of crediting the card, and reach may be limited in some P-to-P and business-to-consumer disbursement cases if the recipient doesn’t have a Visa card,” said Ron van Wezel, a senior analyst for Aite Group based in Amsterdam.
Currently in Europe, most domestic P-to-P schemes leverage a national clearing infrastructure and thus have nearly 100% consumer reach, and P-to-P services typically provide final funds to the bank in real time, he said.
“Visa will have a hard time competing with some of the domestic P-to-P schemes,” van Wezel said.
Visa and Visa Europe did not provide comment by deadline. In its announcement, Visa emphasized the service's track record.
“Visa Direct is a proven platform that enables technology companies, businesses and financial institutions to meet the demand for real-time payments, backed by the ubiquity, cost-efficiency and speed of Visa’s global network,” said Mike Lemberger, Visa’s senior vice president of product solutions for Visa in Europe, in the press release.
The problem for Visa may not be the use case, but the size of the market that can benefit from its product.
“The gig economy is certainly big in Europe, but card usage and ownership is lower overall,” said Gareth Lodge, a senior analyst with Celent in London.
Visa Direct also may be useful for merchants delivering cash returns to customers for quick product returns, refunds, and cash-back promotions, and there are also specific disbursement cases for government benefits and insurance payouts where a prepaid Visa and Visa Direct could be used as an easy mechanism for payout, he noted.
“Most real-time payment systems in Europe post within five seconds and settle multiple times a day, if not within that same posting window,” Lodge said.
That’s a marked difference with the U.S., which only adopted same-day ACH recently, and because it operates on bank hours, settlement is still slower than Visa Direct, which happens around the clock.
But Europe’s payments systems are only picking up speed. This month the pan-European instant payments initiative, SEPA Inst, launches, with a goal of enabling any bank account in Europe to send or receive an instant payment within the next few years.
“With SEPA Inst, the European Central Bank is projecting that 60% to 80% of all payments in Europe will be real-time within the next 10 years, and Visa has a huge amount of risk against that, so this move with Visa Direct looks like a very defensive move for Visa,” Lodge said.
Mastercard is in a very different situation after its $900 million acquisition of VocaLink, which was announced last year and finalized this year after clearing some regulatory hurdles.
London-based VocaLink currently powers the U.K.’s faster payment services, and other regions have licensed its technology for faster payments in Sweden, Singapore, Thailand and the U.S. via The Clearing House. VocaLink’s technology is also under consideration for use in Canada’s move to faster payments, analysts say.
Since closing the deal with VocaLink this year, Mastercard is positioned to broadly support bank account and card-based payments for banks and corporations, including bill payment, in real time or near real time, Mastercard CEO Ajay Banga told analysts in July when announcing the company’s third-quarter earnings.
Visa can't be counted out in the broad faster-payments race, though, van Wezel noted.
“Financial institutions can offer Visa Direct as a value-add to their domestic P-to-P offering, to make cross-border payments in multiple currencies, an area where card networks have an advantage,” van Wezel said.