Visa tests APIs to outflank Asian e-commerce giants, fintechs
As threats from nimble fintechs and global e-commerce companies abound, Visa’s turning to open development tools to place itself in the middle of the innovation, rather than making a solitary counterplay itself.
The card brand is positioning Visa Next as an open toolkit that enables a wide range of digital commerce and mobile payment options through developer tools, documentation and beta APIs. Developers can use these tools to create new digital card accounts on demand, share digital companion card and control access in real-time, activate and tokenize digital accounts for e-commerce and mobile wallets, and set rules and limitations around the use of cards.
The world is moving to a digital-first mindset, with proliferation of connected devices and new use cases that open doors for different ways to pay and different commerce experiences, said Sam Schrauger, senior vice president of global issuer and consumer solutions at Visa.
“Visa’s role, and responsibility as a network, is to enable the ecosystem to build innovative tools and solutions for their end users. It is ultimately our clients and partners who will create what’s best for their end users," Schrauger said in an email.
But these tools also counter an incoming threat, as Visa suggested in its Monday announcement. Asian payment giants such as Ant’s Alipay and Tencent’s WeChat Pay are building merchant relationships in Europe and North America to accommodate Chinese travelers. Visa sees its toolkit as offering an alternative to travelers, who may choose to create a digital Visa card on demand.
“Rather than countering emerging wallets, Visa seeks to enable them in areas where Visa has a strong footprint,” said Rick Oglesby, president of AZ Payments Group. "It also provides banks and processors with new tools they can use to innovate … it reduces the burden on Visa while making it easier for those that work directly with consumers to design new products.”
Visa initially opened its technology three years ago to reach more developers. It was a move similar to PayPal’s strategy in buying Braintree earlier in the decade—to spot new payment innovation earlier in the cycle and use its existing scale to bring technology to a wider audience, faster. Visa Next is designed to attract clients and partners that are looking to meet consumers where they are in their digital journeys, Schrauger said.
There are potentially hundreds of use cases that could come out of these partnerships. Functions such as card controls can be used which could be used for gig economy payments or for parental controls. Another option is installment payments, a favorite fintech play to offer an alternative to traditional credit cards at the point of sale.
Visa’s existing investment in Klarna was an early move into point of sale financing, though there’s been an acceleration. Mastercard just agreed to acquire Vyze to expand its point of sale financing business, and both card brands face threats from fintechs that provide installment payments, such as Affirm, Splitit and PayPal.
Visa Next comes as payment processors are adding more technology through acquisition. Deals such as FIS' pending acquisition of Worldpay and Fiserv's agreement to buy First Data create a competitive need to pair services for financial institutions with merchant acquiring. These deals may also draw in card networks for future transactions, given their impact on debit networks.
"Visa's objective in building this platform was to make available all services we new issuers of all types could benefit from if they were implemented at the national level," Schrauger said, adding the processors are making deals for a "variety of reasons and market dynamics."
By facilitating on-the-fly creation of Visa prepaid card with funds transferred from digital wallets, Visa should up its game against formidable alternative payment systems with more limited international acceptance like Go-Pay, Alipay, WeChat Pay and Paytm, said Eric Grover, a principal at Intrepid Ventures.
“The Visa Next APIs are a piece with Visa’s tokenization services, intended to reinforce the global network’s centrality in the retail payments ecosystem and enable the delivery of a range of highly customized features and functions to traditional and non traditional competitors,” Grover said.
Visa Next will also enable banks to compete with fintech platforms such as Marqeta, Green Dot, Stripe, Fiserv and others, said Tim Sloane, vice president of payments innovation at Mercator Advisory Group, though there could still be some work required from the bank.
“Visa has done a decent job delivering interesting payment functions in the API set, and may even have an advantage when it comes to provisioning mobile devices and IoT, but at the same time it has left compliance issues to the banks,” Sloane said.
Banks that want to use APIs to deliver payments to a mix of 1099 workers still hold onto some compliance work, Sloane said. “The bank will need to build the recipient screening tools individual consent tracking support and other tools required to address regulator issues for that 1099 use case,” he said.