Visa is trying to accelerate the rollout of new digital payment services by making it easier for companies to connect with each other, but its terms may undermine the business models of larger tech companies.
The Visa Digital Enablement Program (VDEP) uses Visa's token technology to add what Visa calls "a no cost" commercial framework. VDEP offers issuers access to the Visa token service to connect to current and future wallet platforms without the need for bilateral agreements. Visa has waived fees for tokens through the end of the year, and has not revealed its plans beyond that time.
VDEP's structure may be problematic for companies like Apple, which collects a fee for each transaction completed through Apple Pay. Companies that participate in VDEP cannot charge what Visa calls "pass thru" fees, or charges connected to transactions that flow through the program, a Visa spokesperson said.
"There is the 'no cost' statement," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "Apple will need to phase out its collection of a few basis points per transaction" if it wants to comply with Visa's terms for VDEP, he said.
However, few companies have the clout that Apple does, and the tech giant has already convinced hundreds of banks and credit unions to agree to its terms. Meanwhile, Google's Android Pay has already announced its plans to join VDEP, and Visa said issuers can begin onboarding activities this summer.
"The digital enablement program allows issuers to know what they are getting into, so they don't have to make the hard decisions," said Jim McCarthy, Visas executive vice president of innovation & strategic partnerships.
Visa has worked with Apple on payments technology, particularly tokenization, and McCarthy said that experience has informed the work that's necessary to bring mobile payments to merchants.
"The users can participate in these new forms of payments in a very turnkey manner through VDEP," McCarthy said, adding the program was designed make security issues easier to manage. "For merchants one of the big concerns is, what will these platforms do with data? We have very tight controls."
The other major companies that have announced plans to join the mobile wallet race include Samsung and the mega-retailers' Merchant Customer Exchange. And prominent wallet apps from overseas, such as Vodafone/Safaricom's M-Pesa and Seamless' SEQR, have been steadily extending their geographic reach.
As banks consider all of these options, a program like VDEP "makes provisioning any wallet with cards from any issuer simpler and it eliminates the need for 'one off' transactions and relationships to delivery functionality," said Thad Peterson, a senior analyst at Aite Group.
VDEP also provides Visa with a level playing field for negotiating with other technology companies, perhaps to avoid a situation where wallet providers push for a similar cut as Apple requests from issuers.
"Visa hopes to [use VDEP] to pressure Samsung and the others to participate, especially if they want 'card present' rates for cloud-based mobile payments," said Richard Crone, a payments consultant.
The VDEP program provides a clear benefit to the tech companies that agree to its terms, Crone said. Google for example, was paying a higher 'card not present' (CNP) rate for cloud-based payments from Google Wallet, Crone said. Google Wallet, which will largely be absorbed by the upcoming Android Pay, uses a virtual MasterCard account instead of the cardholder's credit or debit card account for nearly all payments at the point of sale.
"[Google] made up the difference between CNP and 'card present' (CP) rates for the participating merchants," Crone said. "With Android Pay and VDEP they will be granted CP rates for physical point of sale transactions, thus gaining cost parity with Apple Pay for processing and price differentiation with issuers."
VDEP does not require exclusivitywallet providers and other companies can also enter into separate agreements with companies such as issuers or merchants. Samsung and MCX did not return requests for comment by deadline, and Apple did not provide comment.
VDEP is part of a broader strategy to lure issuers and merchants by easing deployment and making mobile commerce simpler to understand, McCarthy said.
In just the past few months, Visa has announced a purchase of marketing and payments company TrialPay to help merchants tap multi-channel marketing and launched a platform to allow merchants to track loyalty programs.
VDEP program is available to Visa's 14,500 financial institutions and does not require exclusivity; parties can still enter into bilateral agreements outside of VDEP.
Gaining the support of other wallet players besides Google will be necessary for VDEP to be successful, said Rick Oglesby, head of research and product consulting at Double Diamond Research.
"In most cases it should be an accelerator because it establishes a single technology and contractual framework with which to interface with the banks," Oglesby said.