What Made Visa Europe Worth $23 Billion?

On Wall Street, a quarter may linger in the minds of investors for a little while, but a merger brings with it much longer rumination.

As in: What to make of the final bow that capped a year-long dance between Visa and Visa Europe? It’s worth taking a look at each company as a separate entity before they join together in corporate matrimony beginning in fiscal year 2017 until, well, something does them part, if ever (it’s happened before, but, of course, we won’t speculate on a repeat).

On a standalone basis, the two companies operate in different regions, mostly, and Visa clearly wants to gain a stronger foothold in Europe so that it can become a true, single global payments company — the largest on the planet.

On the Visa front, one of the key metrics that dovetails with Visa Europe is the volume growth, which gives an indication of demand for the core services the payments giants offer. The company said that volume in the latest quarter was $1.3 trillion, up 11 percent year on year. Cross-border volume, which hints, possibly, at synergies across the two companies, was up 5 percent for Visa.

Then, there’s the ability for Visa to diversify its base away from the United States, where Visa gets more than half of its business. MasterCard, by comparison, with less than 40 percent, suggests that while smaller, MasterCard operates as a “global” payments player.

Looking beyond the $23 billion price tag, just what is Visa getting? An old saw among investors holds that “price is what you pay; value’s what you get.” By bringing Visa Europe in house, so to speak, Visa gets to put in place a puzzle piece that proved elusive even while it had been expanding elsewhere.

Certainly, within Europe, there’s room for technologically advanced payment methods. As noted by the companies, roughly 37 percent of personal consumption is still done through cash and checks, and at $3.3 trillion, that’s a lot of potential business, even incrementally.

And looking at the company’s latest annual report, there were 509 million active Visa accounts in Europe, with more than 16 billion clearing and settlement transactions processed. The POS statistic of more than €1.4 trillion represents 8 percent growth from the previous full year.

But one real standout stat might give further weight to the move toward Europe and eventually into China.

The growth in contactless payments, as measured by value, jumped more than 280 percent, and eCommerce spending represented as much as €1 out of every €5 spent through Visa in Europe. The bottom line: Clearly, mobile adoption has a significant runway through Visa Europe, and Visa proper now — OK, eventually — will share fully in the fruits of that transition. After all, the average spend per card in 2014 was more than €4,000, with steady growth from the €3,700 seen just four years earlier, and the average number of transactions per card also had been on the rise.

In terms of synergies via technology to promote that eCommerce growth through the next three to four years, as management noted on the call Monday (Nov. 2) morning, the two companies will be working together on Visa Checkout, which at present has 7 million customers, across a quarter of a million merchants.

Visa Europe CEO Nicolas Huss said that “payments are increasingly global with more and more powerful competition. Scale and investment capacity are also increasingly important. Adding to this dynamic is regulation, which you’re well aware is a key focus for our company and industry.” Regulation, of course, can be a bane for payments companies, while Visa is seeking instead to turn it into a boon. Europe has been a hotbed of CNP fraud in the wake of EMV — years in the making depending on where you look — but tokenization remains a key weapon in the battle against fraud.

As of this writing, Visa’s stock slipped on the news of the day — both a slight earnings miss and, of course, the Visa Europe announcement. But the stock may have been reacting to the miss rather than the longer term prospects of the combined entity. As is the case with all mergers and acquisitions, time will tell whether things work out as planned, but it does seem a necessary, and logical, strategic decision on Visa’s part as it checks the box to become the largest payments player in the world.

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