Visa's new CEO will run a very different company

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Visa Inc. caught investors off guard this week with the news that CEO Charlie Scharf is quitting after four years for personal reasons, to be replaced by longtime Amex exec Alfred F. Kelly Jr. — putting the new boss on the hot seat at a time when much is at stake for Visa.

Today, Visa is re-integrating itself with Visa Europe and making peace with longtime rivals like PayPal, while also facing merchant dissatisfaction with the EMV transition and looming legal showdowns. Experts say it’s a tough time to suddenly bring in a new leader, no matter how qualified he is.

“Visa is in a transitional period as it looks to not only expand its position on the value chain, but open up what has traditionally been a closed network,” said Jordan McKee, a senior analyst with 451 Research, adding: “A leadership change during this company-wide evolution is not ideal.”

Kelly has his work cut out for him, and he acknowledged in a conference call that he will be constantly in motion, with plans to spend a significant amount of time in Europe and China, as well as both U.S. coasts, all in service of Visa's business interests.

He also faces plenty of challenges from the merchant side, including outstanding litigation with Walmart on routing issues around PIN debit transactions and the collapse this year of the merchants’ interchange lawsuit.

Kelly does not plan to make drastic changes on day one, but "the reality is that I'm certainly not Charlie [Scharf] and over time I'll figure out how to put my own stamp on the organization," Kelly said in a conference call Monday.

Some changes may be overdue. Many large banks are skeptical of certain Visa policies, McKee said.

“Visa’s attempt to ‘own’ tokenization and its release of services such as the Visa Digital Commerce Application and Visa Commerce Network have raised many eyebrows in the C-suites of large issuers,” McKee said.

Kelly’s background at Amex—which operates on both the consumer and merchant side—could help in confronting these challenges, said Aaron McPherson, an independent payments analyst.

“I think the balance of power is shifting toward the merchants, and that Visa needs to continue to pivot its focus to become more merchant-centric,” he said, noting that it will be a difficult balancing act.

Scharf already has laid out a battle plan and this year he oversaw several strategic moves that might bring the various factions that drive Visa's business into better harmony.

Visa for the first time opened its network to third-party developers, inviting collaboration with financial institutions, merchants and technology companies through the use of APIs.

In July, Visa negotiated a cease-fire with PayPal after tensions between the two companies had escalated to the point Scharf in June warned PayPal of the perils of becoming "frenemies" because of PayPal’s relentless efforts urging consumers to pay via ACH instead of payment cards.

Under that new arrangement, PayPal promised to give Visa issuers equal visibility as funding options, and Visa vowed to provide economic incentives and invited PayPal to join the Visa Digital Enablement Program, which could pave PayPal’s path to acceptance in stores. (Mastercardannounced a similar arrangement in September.)

Visa’s PayPal deal signals a new approach to working with nonbanks and merchants in a rapidly changing marketplace that spans the globe.

“Visa has traditionally played offense in the payments market, but the market dynamics today require more defense,” said Patricia Hewitt, CEO of PG Research & Advisory Services. “Visa needs to recreate for itself a digital imperative to process global transactions and ... this will increasingly be dependent upon partnerships in conjunction with digitally enabling network services to scale.”

Scharf told the board of directors of his plan to resign on Oct. 17, though he’d signaled to them last month he was having trouble straddling his job in San Francisco and responsibilities of being a husband, father and son to family members on the East Coast, said Bob Matschullat, Visa’s chairman, during a conference call later that day.

Visa’s board had already been exploring its options for a successor and its decision to name Kelly as chief was unanimous, based on Kelly’s deep payments experience from 23 years spent at Amex in diverse roles, including as the company's president until 2011.

At the time of Kelly’s departure from Amex, some suggested one reason was that he wanted to be chairman, and after some months he resumed leadership roles elsewhere, venturing far away from payments into sports and community efforts.

Kelly from 2011 to 2014 was CEO of the Super Bowl Host Committee for the 2014 Super Bowl in New Meadowlands, N.J., and early this year he was named chairman and CEO of Intersection Co., which is working to convert New York City’s former pay phone booths into public WiFi nodes.

At Amex, Kelly handled a broad range of duties from leading the consumer card group to overseeing small-business and merchant services, travel services and prepaid card operations.

Visa's board is only one of those Kelly has served on in recent years. Kelly has also held a seat on the board of MetLife since 2009 and currently serves on the board of apparel retailer J.Jill, according to Visa. Kelly also has been a trustee for charitable organizations.

“Mr. Kelly’s deep industry knowledge and familiarity with Visa are reassuring,” said Morgan Stanley analysts in an Oct. 18 investor note.

“While it will likely still take time to become more familiar with Visa’s operational inner workings, we think this is probably a good time for leadership change ... as the priorities and challenges facing Visa over the next few years are likely to be different than the last few years, given the Visa Europe integration and resurfacing of the legal battle with the merchants,” Morgan Stanley said.

Because Kelly has been away from the payments industry in a day-to-day sense for several years, analysts say he will need to move quickly to provide the same results Scharf did in his years as CEO.

“These are big shoes for Al Kelly to fill,” said Tim Sloane, head of payments innovation at Mercator Advisory Group.

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Payment processing Tokenization Charles Scharf Alfred F. Kelly Jr. Visa American Express