Archive for April, 2010

By agreeing to acquire CyberSource for $2 billion in cash, Visa has become a direct player in the increasingly important area of payment processing for e-commerce and, crucially, m-commerce. Visa’s move is part of a trend among the card networks to branch out into new areas, secure future growth potential, and to avoid being blind-sided by potential new market entrants (as happened with PayPal).

Acquiring CyberSource changes Visa’s position in the payment value chain

As Visa Inc’s CEO confirmed in a conference call on the CyberSource deal, Visa has quite rightly been worried about new market entrants in the all-important e-commerce space, and obviously “concerned that it would have an effect on our market share”. Visa’s acquisition of an online payment processor and services provider marks a radical change in the network’s position in the payment value chain, and is a clear stake in the ground when it comes to defending (and potentially regaining) market share in online payment transactions, where the card networks’ share is lower than in the bricks-and-mortar world.

But there is more to it. In addition to offering Visa a direct relationship with merchants, the acquisition will also put it in a better position to expand internationally. In many countries, fear of fraud and a lack of trust in making payments online are more significant issues than they are in the US and UK, and have been holding back take-up of e-commerce. CyberSource’s solution portfolio and the Visa brand are a powerful combination to overcome such concerns.

Their collective commercial proposition is further strengthened by CyberSource’s international network of online merchants. Indeed, the deal also presents Visa with access to value-added services to offer to these merchants which it would otherwise have had to develop itself.

Only time will tell whether Visa can successfully make the transition from its current business model which focuses on brick-and-mortar retailers. But this deal, which is expected to close in Q3 2010, means that the constellation of forces in the online payment market has changed: it positions Visa alongside PayPal as a front runner in the race for future domination of e-commerce and m-commerce transactions, while at the same time putting MasterCard at potential risk of being left behind in the battle for consumer payments in cyberspace.

Visa’s move is part of a wider trend

Visa’s CyberSource acquisition comes hot on the heels of MasterCard’s announcement on April 15 that it was launching MasterCard Labs, a new division designed to develop new payment products and services. Planning to invest tens of millions of dollars in this new division, MasterCard (like Visa) is aiming to ensure that it is in a position to counter the potential threat from new market entrants. American Express made a similar move in November 2009 when it announced that it would spend $300m to acquire Revolution Money, an alternative payment provider founded in 2005.

Both the Visa and American Express acquisitions provide their respective new owners with a whole host of ready-made additional payment service capabilities that can be offered to the wider marketplace, and in Visa’s case, also ready access to 295,000 merchants. MasterCard’s announcement is focused more on future developments, but some of MasterCard Labs’ core capabilities are also founded on an earlier acquisition – Orbiscom. The fact that the former chief executive of Orbiscom is now heading up the new division indicates that there is likely to be a strong focus on the development of services that provide cardholders with new features and functions. The ultimate goal for all of the card networks is to avoid losing customers (and hence transaction traffic) to more fleet-footed newcomers. Only time will tell whether they succeed.