The History of Visa
Visa started out as the BankAmericard back in 1958, in an attempt to offer people a card which would be accepted at a wide variety of merchants. Back then the trend was to only offer charge cards, cards that had to be paid in full at the end of the month, as well as only being able to be used at a limited number of locations.
In the mid 1950’s, several banks tried to get a general purpose credit card off the ground, but this was met with a lot of difficultly, and by the time Bank of America tried this, no one has been able to pull off the feat successfully.
So the Fresno, California market was chosen to launch BankAmericard, and they mass mailed 60,000 cards out to the people of Fresno, which had a population of about 250,000 people at the time. So this certainly saturated the market, and the goal was to drive the demand for it such that the majority of merchants in the area would come to widely accept it.
The test worked, and the project was expanded to larger centers, and by the next year Bank of America had sent out a total of 2 million BankAmericards state wide. The downside of all this was that by just sending these cards to people with no controls, the default rate was much higher than the 4% that the bank had forecast.
It ended up being 22%, and the bank lost a total of about $20 million from this initial rollout. However, the ground had been broken, and once the bank controlled access though people actually having to qualify for the card, it became enough of a success that the card started spreading to other states, and other countries as well.
At the time, banking restrictions prevented a bank from offering credit cards in other states, so this required that they license the use to these out of state banks. These banks were eager to get in on the action though, and around this time a new card called Master Charge started doing the same thing, formed by an association of several large California banks as a competitor and alternative to fellow Calfornia bank Bank of America’s card.
BankAmericard also became licensed in other countries, including Canada, the U.K, France, Japan, and Spain, where the card was offered with various brands and logos particular to each country. In Canada for instance, the card was offered as a Chargex card, in the U.K. it was known as the BarclayCard, in France the card was branded as Carte Bleu, and so on.
What brought all these brands together was the payment processing network behind it, and this part of the business eventually broke off from Bank of America and a separate company was formed to manage it, which is how Visa was born. Originally there were two companies offering the Visa service, Visa and Visa Europe, with the European company eventually merging with Visa Inc.
Visa Is Really A Credit Card Association
While Visa Inc. is a publicly traded company these days, independent of the banks that it works with, it still functions essentially as an association of banks that work together and bring their credit cards all under one easily recognizable and efficient umbrella.
So no matter what bank your credit card is with, and the credit cards themselves are completely owned by these banks, if it’s a Visa branded card, or rather, a Visa co-branded card, you can use it anywhere Visa is accepted in the world, which means virtually anywhere, including online.
Visa processes the transactions, as an intermediary between merchants and credit card issuers, and Visa performs this service for a fee. These processing fees do tend to be significantly higher than what is charged with debit cards, but merchants pay them because they want to accept Visa credit cards or the cards of other major credit card processors.
Visa only plays part of the role here in the processing, moving money between the different banks involved in a transaction, the bank where the money is coming from, the issuing bank in other words, and the merchant’s bank where the funds are being sent to complete these payments.
The lion’s share of these processing fees goes to the bank that issued the card actually, although Visa does capture a percentage of the fees for themselves. This arrangement allows credit card issuers to offer generous rewards to their cardholders as an incentive to use them, and that’s where the rewards come from, not Visa, although Visa does make a lot of money out of the deal, due to the sheer volume of transactions that they process.
Visa now processes over 100 billion transactions each year, adding up to almost $7 trillion. So when you do $7 trillion worth of business, you don’t need much of a cut to make a lot of money. Visa’s net income these days is over $6 billion a year, which makes them a large and profitable company indeed.
Due to the business being essentially an association of sorts, Visa has been embroiled in several anti-trust actions against them, which isn’t unusual given their massive size and market share. When you control about half the market of something, as Visa does with credit card payments, this is going to give you a lot of power over merchants, and sometimes merchants band together to use anti-trust laws to leverage better rates from them, and we have seen some of this.
Visa Is Essentially A Technology Solutions Company
Visa these days is more of a technology company than anything else, rather than a financial company, and in fact they are completely separate from the financial end of things, and have been since they broke off from Bank of America in the 1970’s.
As technology in financial transactions has developed over the years, from the days where it was all done by telephone and on paper to today’s highly sophisticated automated systems and networks, Visa has of course stayed on the cutting edge of things, as this is really their stock in trade.
Aside from the seamless integration of transferring payments, Visa also provides security technology, and security is a major issue these days with credit cards, more so than ever. So Visa provides many measures which offer digital security, which looks to identify patterns that may indicate a higher risk of fraud, from something as simple as someone using a card in another country without identifying anyone, to some much more complex algorithms.
Visa also offers card based technologies such as Visa Contactless, formerly known as Visa PayWave, which uses RFID technology to allow for contactless payments. Visa also offers Visa Checkout, which allows for the use of their cards for payments without sharing your credit card information with individual merchants, similar to what PayPal provides.
Visa also provides administrative support to its card members, including a set of rules that apply to all, as well as organizing certain member benefits across banks. They also provide additional security features on cards such as holograms and chips.
Visa is also well known for its support of sporting events, especially the Olympic games, and since 1986 it is the only card accepted at both Olympic and Paralympic games.
Together with their main competitor MasterCard, they facilitate the bulk of credit card transactions worldwide, and the original idea behind it, being able to use a single card for everything, anywhere, has certainly flourished.