Addressing the crowd at the Sanford Bernstein Conference yesterday (May 27), Visa CEO Charlie Scharf shared some insight into the two regions of the world that the payments industry has been focused on when it comes to regulatory matters: China and Europe.
Specifically in his comments, Scharf started out sharing the progress Visa has made in China in light of the recent announcement that Chinese authorities will open China’s market for clearing domestic bank card transactions that will allow players like Visa and MasterCard direct access to a $6.84 trillion market (as of last year) that they have been nearly entirely locked out of. But he reminded the group that Visa doesn’t have its foot through the door yet.
“Today we cannot compete in the domestic marketplace in China. We have a significant business in China today but it is either issuing cards or co-branding cards alongside China Union Pay for those cards to be used for Chinese travelers outside of China,” Scharf said, later indicating when Visa expects to hear more about the timeframe.
“It’s a huge step forward because it does layout a process, but there are a lot of specifics that we don’t yet know. We expect to get more details in the June, July-ish timeframe. We’ve been very, very active in having dialogue with the Chinese government and the other partners there about exactly the way they see the market developing. And we very much want to participate in the marketplace. I think we’ll have the opportunity to participate in the marketplace but just recognize that what’s being laid out is the process to compete,” he said.
But when Visa eventually gains its share in the Chinese payments market, it’s still going to have to compete with China’s Union Pay, the state-owned bank.
“There is a lot that we need to do even beyond the application process. We don’t have the kind of acceptance that Union Pay has today, who we have to compete with,” Scharf said. “It’s great that we’re going to have access to the marketplace but we need to build our capabilities there over a long period of time and recognize that that’s how we’ll get paid, not in short term.”
Scharf noted that Visa and Union Pay have a “good work relationship,” and noted that Union Pay is focused on building their payment acceptance outside of China at the same time Visa looks to build its acceptance in the country. He also said that it’s likely that in a few years Union Pay will be more widely accepted in the U.S., like in NYC, as it’s a tourist hub for Chinese travelers. Outside of Union Pay, Scharf indicated that Visa is having “ongoing conversations” with Alipay about how to plan to bring Alibaba’s presence outside of China.
While there wasn’t much of an update on the Visa Europe talks that Scharf was able to share, he did provide some brief comments about the Visa Europe put option.
“We think it’s the right thing for the European banks to get access to our broad set of capabilities over the long period of time. We certainly think it’s good for us strategically but we don’t control it. And so we work very, very closely with the Visa Europe management team to do everything we can to appear as one to global clients and give them access to our capabilities,” Scharf said. “We’d rather have a Visa Europe which is very strong, which we [helped to enable] that we ultimately pay more for is because the price we pay is tied to their earnings capacity than the offices. But honestly, they need to vote and there’s not a lot that we could do other than we’re in a great company and say that’s where I want to be a part of.”
Moving beyond Visa’s international efforts, Scharf also answered questions about a key aspect for Visa’s merchant clients: Visa Checkout.
“As commerce moves to digital platforms, that provides just incremental opportunity for us to take advantage of transactions that would have been cash transactions before. Visa Checkout is one piece of that. It’s not the entire strategy that we have. It is in a browser or in an application based solution where you wind up on a checkout page one of the great things that we have done for years and years has been to provide easy broad acceptance,” Scharf said. “The opportunity for us to create something, which is easier to use, is something that the consumer really wants and if it helps merchants actually get more transactions actually closed when they are put into the shopping cart, that’s something that they very much want to do.”
He also noted that he doesn’t view Visa Checkout as a competitor to online payment services like PayPal, because that’s not the reason Visa is investing in its online checkout option. Instead, he said, it’s to offer merchants another option to attract more buyers. Recent statistics from Visa indicate that the buyer conversion rate for consumers using Visa Checkout is roughly 70 percent higher than when using traditional payment method.
“Merchants want a network to have capabilities that can assist them across all those different channels, and that’s the opportunity for us. It is the opportunity to take advantage of all the commerce that exist and we think that there is really no reason why people should not be using our solution.”
And wrapping up his comments, he turned toward the one mobile payment option everyone is always asking issuers about: Apple Pay.
“[As for] Apple Pay itself, I think we’ve got $5 million or $6 million tokens provisioned on Apple phones — something like 70 percent of the transactions or so where the cards or Visa cards today that exist in wallets. And the adoption rate will grow over a period of time. There’s not a lot of NFC acceptance here in the United States today. We knew that, they knew that. But we also know that with EMV coming, merchants across the country replacing terminals and almost all the terminals today come with NFC capabilities,” he said.
Scharf also spoke about the success of Apple Pay, noting that it’s not about “number of transactions” or “number of cards” registered, it’s about what Apple Pay has changed in the mobile payments ecosystem. He also said Visa expects to see usage growth with Apple Pay.
“Apple Pay to us is a real proof point in the marketplace for people broadly to say everyone has been talking about mobile. People have been talking about mobile as a solution without a problem, and all of the sudden what they see is, an experience that really is better than what they have. …Part of their ability to do that was us working with them on tokenization because Apple Pay and other things that you’re going to start to see in the mobile marketplace wouldn’t exist without tokenization. So that was an important stepping stone to enable what these things are.”
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