Visa, every mention

Visa (Audio) · Acquired Nov 27, 2023 · 100 mentions

• ▶ 1:34:15 David Rosenthal Nothing but the Visa logo.
• ▶ 1:34:52 David Rosenthal Yep, and this is kind of the brilliance of the Visa model.
• ▶ 1:35:02 David Rosenthal The whole goal is just get more consumers and more merchants on the network, so anything that's gonna do that great while maintaining the universality of Visa
• ▶ 1:35:21 David Rosenthal Maybe the most important thing, though, for Visa really pulling away and becoming, at least for many decades, the dominant global payment card network,
• ▶ 1:35:34 David Rosenthal The name change ends up becoming this incredible growth hack because what happens is they're the new operating regulations now that mandate that all cards out there, all the previous Bank of America cards need to be migrated to Visa cards.
• ▶ 1:36:01 David Rosenthal So the competition within the network, obviously, this still exists, because consumers now, they know, and Visa runs a national advertising campaign, hey, your Bank of AmeriCard is going to switch to Visa.
• ▶ 1:36:13 David Rosenthal So some banks, in a version of the Fresno drop, they start sending unsolicited letters to consumers who are already Visa, Bank of AmeriCard customers with another bank.
• ▶ 1:36:24 David Rosenthal They're like, oh, hey, it's time to switch over to your Visa card.
• ▶ 1:36:44 David Rosenthal But because of this, a whole bunch of consumers start sort of unconsciously switching the bank that issues their Visa card.
• ▶ 1:37:05 David Rosenthal In the one year between when the visa name change first comes online and takes effect, which is in 1977, and the next year in 1978, the number of banks participating in the visa system grows by 20%, because everybody who's not in the…
• ▶ 1:37:24 Ben Gilbert That pushes Visa ahead of what was, I believe, then called Master Charge.
• ▶ 1:37:40 Ben Gilbert And at this point in history, Visa had about 7000 banks.
• ▶ 1:37:46 Ben Gilbert Thirty seven million versus Bank AmeriCard's thirty one million before they changed to Visa.
• ▶ 1:37:51 Ben Gilbert So this, despite all the deck chair rearranging between the member banks, it was great for Visa to leap ahead of MasterCard.
• ▶ 1:38:01 David Rosenthal The number of active cardholders in the Visa network in this one year grows by 45%.
• ▶ 1:38:57 Ben Gilbert And one of the answers of why this open loop system beat the closed loop system is Visa adopts this strategy of the network of networks.
• ▶ 1:39:46 Ben Gilbert In another country in order to expand to that country, whereas Visa just needs to go tap a few banks and say, why don't you go figure out how to grow for us there?
• ▶ 1:40:14 Ben Gilbert Anytime that you have something that's more distributed, you're going to be compromising a little bit on the user experience because you can't sort of rule by fiat when you want to make a change, but it does potentially come with much…
• ▶ 1:40:37 David Rosenthal I mentioned that the DOJ eventually came after both Visa and MasterCard and
• ▶ 1:40:45 David Rosenthal That does happen in 1975, and so this concept of duality takes hold for the bank's duality, meaning they can multi-home on both Visa and MasterCard.
• ▶ 1:41:23 David Rosenthal Because now there's no more competitive vector between Visa and MasterCard.
• ▶ 1:41:40 David Rosenthal Irony of ironies, later in 1988, the DOJ again sues Visa and MasterCard for being a duopoly and not competitive enough.
• ▶ 1:41:54 Ben Gilbert There have been many attempts that we'll talk about toward the end of this episode of displacing Visa and MasterCard or inventing new payment systems, and like, they never work, or they haven't worked yet.
• ▶ 1:42:42 Ben Gilbert But interestingly, Visa and MasterCard cried foul when, ah, you know, all of their banks were multi-homing, and Amex, with their virtue of a slightly different business model, was allowed to go and try to lock up merchants to be exclusive…
• ▶ 1:43:03 David Rosenthal So, this basically concludes the full Visa story.
• ▶ 1:43:45 David Rosenthal Something that is also true, and also I think really underappreciated about Visa,
• ▶ 1:43:51 David Rosenthal Is it's also a technology company, and there is a whole technology story in parallel with this, too, that enabled the Visa we know today.
• ▶ 1:44:01 David Rosenthal To Dee's question of where is Visa headquartered and nobody knowing that, it's headquartered in the Bay Area.
• ▶ 1:44:44 Ben Gilbert A tremendously powerful piece of infrastructure focused, just like Visa, on reliability.
• ▶ 1:44:50 Ben Gilbert As we will talk about later this episode, Visa never goes down, or basically never goes down, and that was a super important part of their strategy.
• ▶ 1:46:39 Ben Gilbert Ok, so David, what does Visa's technical infrastructure look like, and how did this come to be?
• ▶ 1:46:53 David Rosenthal But all it really bought D and Visa was the opportunity.
• ▶ 1:47:26 David Rosenthal Ok, let's assume we do this, and we put one of these soon-to-be Visa cards in the hand of every consumer on the planet.
• ▶ 1:48:06 David Rosenthal But it wasn't like it is today, where obviously you're gonna use your credit card, which is probably a Visa and maybe a MasterCard, to pay for everything that you do everywhere instantly.
• ▶ 1:50:19 David Rosenthal So to get from there to today, three major pieces of technology needed to be built by Visa.
• ▶ 1:50:43 David Rosenthal We glossed over one sort of stopgap slash band-aid that Visa and other credit card networks implemented around authorization.
• ▶ 1:51:23 David Rosenthal I mean, the reality was, this was the threshold below which the banks and Visa were willing to say, okay, we'll accept a certain amount of fraud.
• ▶ 1:52:56 David Rosenthal And so this is a big part of one of the first things that Visa builds.
• ▶ 1:53:31 David Rosenthal So D and Visa know that this is like the first thing that they have to address.
• ▶ 1:56:11 David Rosenthal And this is huge for Visa because this means they can build it on their own.
• ▶ 1:56:34 David Rosenthal Go build a computerized authorization system for the Bank of AmeriCard Visa network.
• ▶ 1:57:15 David Rosenthal You come join us and you'll build out your own tech team here within NBI slash Visa.
• ▶ 1:57:20 David Rosenthal Aram comes and joins and starts the core of the Visa tech team.
• ▶ 1:57:58 David Rosenthal Building a new centralized data center for Visa in the Bay Area, and this becomes the San Mateo campus.
• ▶ 1:58:10 David Rosenthal It is, I believe, still the headquarters of Visa today now.
• ▶ 1:58:25 David Rosenthal So miraculously, Aram and his new Tiger Visa tech team, they do it.
• ▶ 1:59:24 David Rosenthal That's gonna be the final third piece of the stool of technology that Visa builds.
• ▶ 1:59:44 David Rosenthal That's the next big operational technical problem that Visa needs to solve.
• ▶ 2:00:24 David Rosenthal And, even more perniciously, as the network grew, and at this point in time, soon to be Visa is growing explosively, the complexity of this settlement piece also grows, sort of exponentially.
• ▶ 2:01:26 David Rosenthal Visa builds an automated clearinghouse for themselves to do settlement electronically over the network.
• ▶ 2:01:43 David Rosenthal Time and place as when the Federal Reserve is building their own ACH system for checks, you know, automated clearinghouse, ACH, everything in the banking system that was built by the San Francisco branch of the Federal Reserve in the exact…
• ▶ 2:03:06 David Rosenthal Once base two is done, and again, it also happens in less than a year that it's live and up and running, average settlement time for transactions on the Visa network go from taking a week on average to happening in batch overnight every…
• ▶ 2:04:05 David Rosenthal It is also during this project that one of the most famous Visa tech team stories in history happens.
• ▶ 2:04:40 David Rosenthal So he goes to see D and I mean, the whole visa organization, I think is like less than 50 people at this point in time.
• ▶ 2:04:49 David Rosenthal You know, all this technology we're building, you know, we've got authorizations running, we're in the middle of getting settlement running, like, the whole Visa network now depends on this technology.
• ▶ 2:06:31 David Rosenthal Visa, though, and the Visa tech team, they're like, you know, if we're going to go through all this trouble and expense of building another data center,
• ▶ 2:07:08 David Rosenthal This whole data center world was still pretty new, and Visa definitely, like, through ingenuity, invented a way to do this.
• ▶ 2:07:30 David Rosenthal The third big leg of the technology stool that Visa builds is finally digitizing the point of the transaction itself, and that requires both figuring out some way to make the cards digital, or capable of being read in a digital manner, and…
• ▶ 2:09:15 David Rosenthal So Visa makes the decision.
• ▶ 2:09:45 David Rosenthal Visa's like, hey, we're not gonna pay you, Citibank, a skiff on everything that we do here.
• ▶ 2:10:02 David Rosenthal Now, this is pretty far outside the scope of what Visa itself could do.
• ▶ 2:10:23 David Rosenthal So, what Visa does is they create a spec.
• ▶ 2:10:59 David Rosenthal Now, the merchants didn't exactly want this thing, necessarily, but the way Visa incentivized them to get it is they gave merchants who used it a discount on transaction fees, I think for a period of time, for transactions that happen…
• ▶ 2:11:40 David Rosenthal Just like with base one and authorization, where Visa had to build out a telecommunications network amongst all the banks, now Visa needs a telecommunications network
• ▶ 2:13:07 David Rosenthal Visa ends up renting CompuServe network capacity to send their digital transactions from merchant point of sale terminals.
• ▶ 2:14:00 David Rosenthal You know, if you're charging a five dollar transaction to a card, it's just not worth it to the banks and Visa to, like, figure out whether that's fraudulent or not.
• ▶ 2:14:46 Ben Gilbert Like, at the end of the day, Visa probably could have maintained a margin, and all the banks could have maintained a profit margin.
• ▶ 2:15:21 David Rosenthal Two, though, for Visa as a company and Visa as a business, they are now fully digital.
• ▶ 2:16:51 David Rosenthal A lot of people, probably everybody listening now knows Visa is associated with the Olympics.
• ▶ 2:17:06 David Rosenthal Visa is the Olympics everywhere.
• ▶ 2:18:38 David Rosenthal A couple years before this, right as the visa empire was being completed with the full digitization of the network,
• ▶ 2:18:47 David Rosenthal Dee ends up getting ousted from the company.
• ▶ 2:19:14 David Rosenthal A lot of conflict starts to erupt, ends up with D leaving the company in 1984.
• ▶ 2:19:20 David Rosenthal After this happens, Visa brings on a new global chief marketing officer, a guy named John Bennett, who came from 20 years at American Express.
• ▶ 2:19:40 David Rosenthal They're also formulating the new visa marketing strategy.
• ▶ 2:20:17 David Rosenthal But we need global ubiquity and adoption and people to get comfortable with using Visa and using credit cards.
• ▶ 2:21:23 David Rosenthal The strategy is use American Express to eliminate the stigma around Visa, and by association, paint MasterCard as having that stigma, because we're not even bothering to talk about them.
• ▶ 2:21:43 David Rosenthal The American Express merchant network at the time was about 25% the size of Visas.
• ▶ 2:23:40 David Rosenthal The only payment card provider accepted there is Visa.
• ▶ 2:23:50 David Rosenthal It has now been 37 years that Visa is the exclusive payments global sponsor of the Olympics.
• ▶ 2:24:00 David Rosenthal So it will be at least 46 years where Visa
• ▶ 2:24:16 David Rosenthal But the reason we're talking about this, A, it's an awesome story, but to the last outstanding piece of enabling the global visa empire, this last thing is the stigma.
• ▶ 2:24:57 Ben Gilbert Right, and now they're an enormously profitable public company, so how did we get from there to here?
• ▶ 2:25:21 David Rosenthal In 2005, there finally was another huge antitrust lawsuit, I think against both Visa and MasterCard.
• ▶ 2:25:49 Ben Gilbert You know, there's a variety of different ways, and this particular class action suit in 2005 is still running today, and the numbers have mostly been figured out of how much Visa will owe from a 20 12 ruling that then got appealed, so it's…
• ▶ 2:26:29 Ben Gilbert And so, as they're getting ready to go public, for lots of reasons, basically it was time, they wanted to have some liquid currency that
• ▶ 2:26:52 Ben Gilbert And what they had to do was they created these B shares and they isolated all the liability from this class action suit to the B shares.
• ▶ 2:27:00 Ben Gilbert So while MasterCard had a pretty flubbed IPO, Visa had a great IPO because they said,
• ▶ 2:27:06 Ben Gilbert Whatever the courts rule, the banks who own the B shares, the pre-existing shareholders will own all that liability, and all the A shares, the, the new people who are coming in as owners of the company will be protected.
• ▶ 2:27:23 David Rosenthal Visa goes public right as the financial crisis is starting, which obviously wasn't planned, but ends up being great for the banks and probably for Visa, too.
• ▶ 2:27:38 David Rosenthal Up to that point, they raised eighteen billion dollars at a ninety billion dollar initial market cap, but that eighteen billion dollars wasn't primary capital to the company's balance sheet because obviously Visa was incredibly profitable,…
• ▶ 2:27:54 Ben Gilbert It prints money.
• ▶ 2:28:01 David Rosenthal To the banks that owned the company, which I think for many of them proved to be a total lifeline through the financial crisis that helped them survive.
• ▶ 2:28:12 Ben Gilbert I mean, now Visa is owned mostly by big institutional shareholders, the vanguards and fidelities of the world, and the banks are much smaller shareholders.
• ▶ 2:28:20 David Rosenthal Well, at this point, Visa's market cap is significantly larger than any of its former member banks.
• ▶ 2:28:53 Ben Gilbert So, David and I have made passing references to the idea that this is this ludicrously cash-generative business, and I think it's time to actually examine interchange fees today, how they've changed over time, how they flow, who benefits,…
• ▶ 2:29:11 Ben Gilbert So, Visa's business model.
• ▶ 2:30:19 Ben Gilbert There are assessment fees, or network fees, and that network fee goes to Visa, MasterCard, etc.
• ▶ 2:30:50 Ben Gilbert There's a very long PDF on Visa's website that is available with every different concoction you could imagine.
• ▶ 2:32:42 Ben Gilbert You read Visa's entire annual report and you're like, wait, but what part of the split do you actually get?