Visa IPO - Big Changes?
$17.9 Billion. Wow, good deal, if you can get it! They are partying in California now. Now the adjustment to public company pressures begins. Note that Visa has promised $300 million in cost reduction to enhance returns of its stockholders in the coming year.
But what can we expect to change at the association aside from continuing to squeeze out the fat, which has always been considerable, although melting away in recent years? Some commentators speculate that large issuers may now be more inclined to push off on their own and create their own networks, and that Visa will start to compete with its issuers by offering value-added services to merchants and possibly cardholders. (http://www.creditslips.org/creditslips/2008/03/the-visa-ipo.html#more)
My take on this is quite different.
First of all, aside from the litigation planning aspects of the IPO, I believe the large issuers understood that their very good deal with Visa in terms of favorable pricing and "scholarships" was not likely to change after Visa went public. After all, where do Visa's revenues derive from? Answer: Sales volume or its proxy, transaction volume. And what drives these numbers more than any other factor? Answer: The number of cards issued. And who issues most of these cards? I know, annoying.
If anything, there will be even greater pressure on the Visa Inc. Board to keep the big issuers happy, so that sales volume and thus revenues continue to rise. Losing a big issuer would be a very expensive proposition for Visa Inc. stockholders, not to mention Visa management. The objectives of the independent directors will be happily aligned with those of the large issuers (and management), and the Board of Directors of public Visa Inc. may even be more solicitous than the banks were to themselves when they controlled (and actually were) the Board of Directors. This solicitousness may also dampen any new initiatives by a newly-emboldened Visa staff that might be deemed competitive by the large issuers. Nothing new there from the good old days.
The other factor that separation speculators seem to minimize is that it would be an extremely non-trivial matter for a large issuer to set up its own closed payment network. With enough money and time anything can be done (witness Discover), but how can an issuer justify doing so if it already has in place a highly-profitable payment product and pays little for the privilege of issuing it (the aforementioned "scholarships")? Oh, I think things will pretty much percolate along as before, except that the banks that used to own Visa are $10 Billion dollars richer. Beats subprime mortgages, which is another topic.
But what can we expect to change at the association aside from continuing to squeeze out the fat, which has always been considerable, although melting away in recent years? Some commentators speculate that large issuers may now be more inclined to push off on their own and create their own networks, and that Visa will start to compete with its issuers by offering value-added services to merchants and possibly cardholders. (http://www.creditslips.org/creditslips/2008/03/the-visa-ipo.html#more)
My take on this is quite different.
First of all, aside from the litigation planning aspects of the IPO, I believe the large issuers understood that their very good deal with Visa in terms of favorable pricing and "scholarships" was not likely to change after Visa went public. After all, where do Visa's revenues derive from? Answer: Sales volume or its proxy, transaction volume. And what drives these numbers more than any other factor? Answer: The number of cards issued. And who issues most of these cards? I know, annoying.
If anything, there will be even greater pressure on the Visa Inc. Board to keep the big issuers happy, so that sales volume and thus revenues continue to rise. Losing a big issuer would be a very expensive proposition for Visa Inc. stockholders, not to mention Visa management. The objectives of the independent directors will be happily aligned with those of the large issuers (and management), and the Board of Directors of public Visa Inc. may even be more solicitous than the banks were to themselves when they controlled (and actually were) the Board of Directors. This solicitousness may also dampen any new initiatives by a newly-emboldened Visa staff that might be deemed competitive by the large issuers. Nothing new there from the good old days.
The other factor that separation speculators seem to minimize is that it would be an extremely non-trivial matter for a large issuer to set up its own closed payment network. With enough money and time anything can be done (witness Discover), but how can an issuer justify doing so if it already has in place a highly-profitable payment product and pays little for the privilege of issuing it (the aforementioned "scholarships")? Oh, I think things will pretty much percolate along as before, except that the banks that used to own Visa are $10 Billion dollars richer. Beats subprime mortgages, which is another topic.
Outstanding analysis and I heartily agree. Everyone seems to be looking for the "what's going to be different," when the bulk of the analysis should be on "what's staying the same." The obsession with the brand value will continue and that manifests itself most with issuer relationship (and it's a mutually-agreeable position, regardless of rumblings from large issuers). I think there is a balance there, however -- there has to be some level of "value added services" that can be developed and implemented without drawing the ire or raising the competitive hackles of issuers, no? Can't wait to hear more from you on this!
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I certainly agree that there are value add services that Visa can develop, and they are doing so whenever possible. I guess my point is that you can change the legal structure of Visa but you can't remove the association dynamics. Thank you for your comment.
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