Apple Pay

Visa Pushes Tokens For Apple Pay — And Beyond

Visa is already looking beyond Apple Pay. The world’s largest payment-card brand announced on Thursday (Jan. 29) that it beat analysts’ expectations, isn’t planning layoffs and will do a 4-for-1 stock split in March. But Visa is also pushing the tokenization that lies at the core of Apple Pay onto browser-based e-commerce this spring, and onto non-Apple phones later in 2015.

“We’re very excited about what Apple is doing. We think it’s a very elegant solution that we are thrilled with our participation in,” said Visa CEO Charlie Scharf. “But we want to enable as many scalable solutions that have wonderful customer interfaces that adhere to the highest security standards. And we would expect to see a series of those in the next couple of quarters come to market.”

Scharf said Visa is in “very, very active dialogue” with handset manufacturers and other players about getting token-based mobile payments onto other platforms, though he didn’t name any partners. Samsung is reportedly working with Visa on its own Apple Pay-like mobile payments.

For browser-based e-commerce, Scharf was less cagey: “In the spring of this year we will have some tokenized solutions in the marketplace for some browser enabled solutions,” he said.

But Apple Pay is still front and center for the card brand. Of the roughly 750 banks and credit unions that have signed up for Apple Pay, 43 Visa issuers have enrolled in Visa’s tokenization services for Apple’s mobile payments — financial institutions that together account for 75 percent of Visa’s U.S. payment volume. More than 500 other U.S. Visa issuers have signed the Apple Pay contract and are working with Visa to enable the service, according to Scharf.

Visa is also “very actively working with issuers in other parts of the world [on Apple Pay] and would expect to see some tokenized solutions in the marketplace this calendar year,” Scharf said.

In its traditional payments business, the numbers were good too. Payments volume grew 11 percent to $1.2 trillion for the quarter, while cross-border payment volume growth was 8 percent. Total transactions processed by VisaNet were 17.6 billion, a 10 percent increase from the prior year. Service revenues were up 8 percent to $1.5 billion (based on transactions from July through September), data processing revenues rose 9 percent to $1.4 billion, and international transaction revenues grew 9 percent to $970 million, the company said.

All told, net operating revenue for the quarter was $3.4 billion, up 7 percent from the prior year, discounting currency impact. Quarterly profit rose 11.5 percent to $1.57 billion, or $2.53 per share. Analysts had expected earnings of $2.49 per share on revenue of $3.34 billion, according to Thomson Reuters I/B/E/S.

The company also announced a 4-for-1 stock split that will be effective on March 18, 2015.

But, like other card brands, Visa lost some growth to the effects of the stronger dollar on foreign exchange rates, which cost Visa about 2 percent in cross-border payments growth, and about 1 percent growth lost because of lower gas prices.

Scharf said the company’s surveys indicate that of the money consumers don’t have to pay at the pump — thanks to roughly a 30 percent drop in gas prices since June, there’s an average windfall of $60 per month per consumer — 50 percent is going into savings, another 25 percent is paying off debt, and only 25 percent is being spent, typically on groceries or small-ticket purchases.

Eventually consumers may decide they’re comfortable enough to start making more large purchases, but that hasn’t happened yet, he said.

An upside factor over the holiday selling season was e-commerce, which was “extraordinarily strong,” Scharf said. “Growth rates of e-commerce were two to three times what they were in the physical world. We like that, because cash doesn’t work in the online world, and so we’ve got a much higher participation rate in the e-commerce world than we do in the face-to-face world.”

Visa Checkout now has more than 240 financial institution partners across the U.S., Canada and Australia that account for almost 50 percent of Visa’s global e-commerce volume. Visa Checkout has more than 3 million registered users and can be used at more than 110 e-commerce retailers, he said.

But Visa is also whittling away at regulatory and legal issues. In Russia, which has required international card brands to move to a state-run transaction network, the company will spend about $50 million in 2015 to meet the requirements. And in China, where Visa has some issuing banks but can’t yet sign up merchants to take payments, the government is in the process of writing regulations to open the market, but no date has been set.

In the U.S., Visa has spent $335 million to settle with merchants who opted out of the multibillion-dollar interchange settlement. That represents about 20 percent of the payment volume that opted-out merchants generate, said CFO Byron Pollitt.

And Scharf said Visa is also participating in the Federal Reserve’s “faster payments” efforts. “Our experience has been that they’ve been extremely inclusive with all partners, seeking input,” he said. “In terms of what it means for us, I don’t think any of us exactly know. What we do know is that we have a network that works extraordinarily well, that provides great value for people who run transactions over it, and a lot of what we do isn’t easily duplicated.”

He added, “It’s one thing to say that you’re going to be building something. It’s another to actually get it in the marketplace, with the ability to put value added services around it.”

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